Gold Silver Worlds: Gold has shown strength in today’s trading session. Last week, the yellow metal was trading near $1280, a huge support zone and key inflection point which has held very well. Now, it seems that $1300 is holding as well, a sign of strength, at least short term. Dan Norcini discusses the technical picture in more detail. He explains the current state of the gold price based on the charts and his expectations going forward.
Yesterday’s FOMC minutes continue to put pressure on the US Dollar, but even more importantly, acted to depress US interest rates. That is the key driver for gold in my view at this time. Gold seems to struggle when interest rates here in the US rise as investors see little threat of inflation and seek out assets that will throw off some sort of yield rather than the yellow metal which only provides gains if it continues to rise in price. In a benign inflation environment, many do not believe gold will continue to rise.
From a chart perspective, gold continues to remain within the broad trading range outlined for some time now. It will need a catalyst of some sort to kick it higher or send it lower. What that might be remains unclear to me.
The chart shows that gold has run into some selling near the resistance level noted near the $1320 region. Above that, resistance is layered in approximately $20 increments, first near $1340 and then again near $1360. Downside support comes in near and just above $1300 followed by our old friend near $1280.
On the ADX, which indicates a trendless market, the bulls have regained the short term advantage. Stochastics are rising as price moves up in the range showing the near term friendly picture. How this market handles this $1320 level today and tomorrow, will be a key as to how to approach it. The trading range is pretty broad (up near $1400 on the top and $1280 on the bottom).
I cannot see what would cause this market to break out of its current range at this time. The Dollar would either have to drop off sharply breaking down below 79 on the USDX or interest rates would have to plummet sharply here in the US, along with perhaps a larger selloff in the broader equity markets to take it up out of the top end of the range. On the downside, we would need to see a sharp rally higher in the US Dollar and a surge in interest rates above the 3% level in the Ten Year to take it down below $1280 in my view.
Take a look at Eurogold. Notice how it too is essentially rangebound. The ADX reveals the lack of a clearly defined trend. The top of the range is up near the 1000 euro region; the bottom down near 880 – 860.