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May 26th Gold Trend Analysis

In last nights website update resistance was lised at 1533-1537 and the high so far today is 1531 — support was listed at 1513-1520 and the low so far is 1515.

CME NEWS

London Gold Fix $1,521.50 -$5.50

Last night on the website we discussed that if there was to be a pullback this week it most likely favored Thursday and into the economic reports coming due. Despite some favorable press coverage overnight, gold prices started dropping about an hour before the London open and the drop accelerated into the morning before the New York open. Prices have since recovered from the lows as employment CLAIMS came in lower —-but GDP came in a lower expectation also this morning.

However, going past today and the coming long weekend, gold saw favorable longer term demand forecasts from the World Gold Council in the form of predictions of a large jump in Chinese gold imports but the market also saw upbeat Chinese gold production news from a Chinese mining official. While Indian gold prices showed some initial strength overnight, prices have pulled back into the early US Thursday action in anticipation of the reports and perhaps because the trade saw news of a rise in gold production from a Chilean miner.

However, with the prediction of rising Chinese gold import demand covering three years into the future, the gold trade should continue to see residual support from the Chinese demand front. However, it is possible that an “as expected” decline in US claims figures (which was correct) could facilitate even more interest in the “risk-on” mentality.

The gold market might be seeing some pressure from news overnight that a Mexican miner was hedging some gold and silver production, as that provides the market with implied supply and that might also serve to temper bullish sentiment.

Global equity markets benefited from follow-through momentum after a positive US trade Wednesday, and that inspired gains in most Asian markets overnight. That optimism, along with a weaker US Dollar and a boost in risk taking appetites carried over into the European trade. US equity futures are mixed , but have slipped from their morning highs. The US Dollar broke down to a new 4-session low this morning, while the Australian dollar and Euro rallied. April import prices in Germany declined from March and came in at the lower range of expectations. There was also a report on Italian Business Confidence earlier this morning that came in below expectations.

Going to the CHARTS:

Today’s drop in gold is in context with a pullback from the 61% retrace (1533) back down to the 50% at (1519) — Thus we view this as a pullback — and we’re assuming that the mid week Wednesday peak is just the pullback we discussed as being on Thursday this week — as the ideal time. Resistance for the rest of the day is the 1526-1531 area and support is 1506-1511 —- and also 1516-1519.

A pullback to the lower purple channel line can’t be eliminated — especially when we look at more reports coming out on Friday and a LONG Memorial day weekend with USA closed on Monday. Friday should see lower volumes and as we discussed last night —- this makes for more potential volitility on price movement. The short term stronger trend that kicked in on May 17th is also due to peak in the first week of June — and we’ll take a look at those dates on the weekend.

In summary — the trade has pulled back into Thursday — and may continue to vasilate into the Friday reports —and then volume will go way down. Be cautious.

by Bill Downey

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