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May 11th Gold Trend Analysis

In last nights website update resistance for gold was listed at 1521 – 1525.50 and the high so far is 1526.50 —-Support was listed at 1504-1512 and the low so far is 1505.

London Gold Fix $1,524.50 +$7.25

In addition to short covering buying in the wake of the early May washout in gold prices, it would seem like gold benefited from strong seasonal Indian buying on Monday and Tuesday. While high gold prices at times have discouraged Indian gold buyers, the combination of a key wedding period and the $115 correction in gold prices, has apparently resulted in very impressive demand for gold bars and gold coins in India at the end of last week. The World Gold Council suggested that some gold sales figures were up by as much as 25% over year ago levels and for some, that erases some concerns that high gold prices have begun to temper demand. In fact, one year ago gold prices were roughly $300 below current levels and therefore the boost in Indian fest buying at higher price levels was not an issue.

The bears could suggest that dollar action clouds that comparison and that gold prices did not hold even on the news of a large Chinese trade surplus reading and news of strong Chinese crude oil imports in their latest monthly figures. Crude is down $2 dollars as of 10AM EST.

While the gold market might discount the projection of a rise in gold prices back above $1,600 an by a mining company official overnight, higher Chinese CPI readings overnight was another development that facilitated inflation talk in the gold pits but the gold peak just one hour into the London session has been pushing lower into the 10am EST period in New York.

A strike in Greece over austerity measures have grinded the nation to a halt today. Recent rates have been 25% and the US dollar is gaining strength again after an early week pullback.

While equity markets in Asia were mixed during overnight trading, stock indices in Europe early are generally stronger this morning. The US equity markets opened today’s session with lower prices on weakness in Disney stock. The Dollar is rallying against most of the major currencies during on the escalating Euro debt. There are reports that Greece may negotiate to receive additional aid from the EU and the IMF in exchange for increased privatization of government assets.

The Bank of England raised their inflation forecast for the UK economy, saying that it could reach 5% during the second half of 2011. Chinese CPI during April was up 5.3% year-on-year, slightly higher than market expectations. Chinese Industrial Production during April was up 13.4% year-on-year, lower than forecasts. German CPI during April was up 2.4% year-on-year, in line with estimates. The UK Trade deficit during March was 7.66 billion Pounds, a larger deficit than projections. The second leg of the US Treasury’s monthly refunding, the 10-year note auction, will have results announced at 1:00 PM EST. Major US economic numbers released this morning was the March International Trade Balance and came in at 48 Billion — higher than expected.

Going to the charts: (Moving averages — 13 day at 1518 – 34 day at 1478 — 50 day at 1459)

In yeserday’s update we discussed the ideal time for a peak from this bounce was mid week Wednesday in the 1522-1533 area and today’s high at 1526 met that expectation on both time and price range. We can see on the chart that price reached the projected upper dotted trend line with an exact hit — and price has dropped 17 dollars from that line over the past 6 hours. The key now will be if gold can hold the 1498-1504 area as the day moves on. The strength in the bounce this week was pretty good — but the short term cycles are still overall favoring weaker price into next week. A lot will depend on how strong this pullback is and where we support. Speaking of which — support for the remainder of the day will be first at 1494-1501 and 1475-1478 should price accelerate lower. Resistance will be the 1514-1519.

In summary — the mid week peak seems to have taken place at the key price levels. Ideally, gold could pullback into next week — but at the moment —we’ll have to see where support comes in and how the pullback PATTERN looks. We’ll favor the pullback as dominating and a retest lower for gold to try and find some support levels.

by Bill Downey

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Thoughts
"For a mountaineer, the important things are the effort, the posture and the muscles. The rope that holds him serves no purpose when everything works but it gives him a sense of security. In the same way, all gold does is ensure confidence; it's a safe haven."