Thursday’s Technical Analysis For: Gold

$GLD

From its opening price of about 1145 Wednesday, Gold has dropped almost 30 to a low so far of 1117 and is trading at 1127 in Asia as I write this report.

It has shed its entire gains made since the beginning of the US stock market’s correction on Wednesday of last week. Gold’s counter-intuitive price action this week strongly suggests that the metal is heading to significantly lower levels.

The deep 1000 pt + dive in the DJIA Monday, and the extreme stock market volatility (VIX) since should have boosted the appeal of Gold like the other safe-haven assets.  It has not. The metal has been weighed down by a corresponding bounce in the USD over the past couple of days.

It is still very early in this stock market correction and participants should not form a strong conviction about Gold’s near-term direction.

If the stock markets extend their declines then so too the USD’s expectations over a Fed rate hike gets pushed further out. This scenario is likely to help bolster Gold.  As I have written the Fed was almost certain not raise rates in September and has been jawboning the markets.

And the recent comments by the Fed officials have  interpreted as Dovish and has raise questions about a rate hike in Y 2015 if at all. In fact there is talk on the street of another round of QE sooner rather than later.

But, right now Gold appears to be on a shaky ground.

Bullish speculators will have been very disappointed that the metal has been unable to benefit from the stock market turmoil this week, and are becoming less optimistic about a potential rally.

The Bears will be happy that the 1165/70 resistance area has been defended successfully. The 1165/70 zone marked the convergence of the 100-Day MA with a medium-term Bearish trend line and the 38.2% Fibo retracement of the downswing from the Y 2015 high that was achieved in January at 1307 oz.

As a result of the sell-off, Gold has broken several Key supports including 1145 and 1135, levels that may now turn into resistance. The next support could be the 61.8% Fibo retracement mark of the recent up move at 1112/3.

The Bulls will not only want to see these levels hold as support but need Gold to go on and break that 1165/70 resistance Zone. If this would be a very Bullish development.

That is  because it would will confirm the break out from a potential falling wedge Bullish pattern.

As I write this in the Asian session, at GMT0300, Gold is trading at 1127.10, or + 0.37% higher from Wednesday’s close.

India, the world’s 2nd-biggest Gold buyer after China, imposed the import restrictions last year to avert a trade deficit crisis that pushed the Rupee to record lows.

“Restrictions placed on import of Gold… stand withdrawn with immediate effect,” India’s central bank said in a statement on Saturday, 29 November.

Support for Spot Gold comes from jewelry demand from India in the lead up to and during the wedding season, which starts again in late September. India did record a 176% increase in Gold imports in August to US$2-B from about US$756-M.

Overall, the impact of wedding season Spot Gold  buying has faded in recent times as India is no longer the world’s largest Gold consumer, partly because of the on-going government  import restrictions on precious metals. If they are further relaxed, perhaps India will regain its Top spot.

India’s Akshaya Tritiya festival considered by India’s more than 900-M Hindus as an auspicious day to buyGold and Silver, fell on 21 April this year. Bullion is bought in India during festivals and marriages as part of the bridal trousseau or gifted in the form of jewelry by relatives.

Stay tuned…

HeffX-LTN

Paul Ebeling