April 18th Gold Trends Analysis

In last nights website update resistance in gold was listed at 1494-1505 and the high so far is 1497.   Support was listed at 1471-1478 and the low so far is 1477.

London Gold Fix $1484.50 +$12.00

The big news this morning is that S&P head of sovereign ratings has cut the USA ratings outlook to negative.  This has caused the stock market to open about 175-200 points lower in the Dow Jones and for interest rates to move higher as some bonds and equities sold off heavily on the news. The news took gold from 1482 to 1497 in less than five minutes.  This puts intense pressure on the government to push for fiscal consolidation — and the rating change is due to whether agreements between congress and the administration is going to be sufficient to address the structural problems.

On the other side of the globe, renewed concern toward the Euro zone sovereign debt threat has put a lot of pressure on the Euro coming into the Monday morning trade in USA. A daily newspaper in Greece said that nation had told the IMF and the EU that it wanted to restructure its debt.

The US dollar initially rose as interest rates spiked higher this morning on the downgrade news.  At the moment the markets are still adjusting to this news and the spike in the US dollar may just be a reaction as it has already pulled back.  It will be important to see if it can maintain the initial rise above 75.  A weak US housing number later in the trading session will increase macro economic uncertainty and potentially undermine the US Dollar.

Before the ratings announcement gold had been under a little pressure on another Chinese tightening move (the 2nd in two weeks) and noted weakness in oil prices. But the ratings change and credit consequences reversed gold sharply higher taking gold to our first resistance area of the day.

The Commitments of Traders Futures and Options report as of April 12th for Gold showed Non-Commercial traders were net long 228,893 contracts, a decrease of 1,865 contracts. The Commercial traders were net short 283,182 contracts, a decrease of 3,909 contracts. The Non-reportable traders were net long 54,289 contracts, a decrease of 2,043 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 283,182 contracts. This represents a decrease of 3,908 contracts in the net long position held by these traders.

Going to the gold chart:

Price has reached the first level of resistance in the 1496 area as listed on the website and the potential that gold has made its highs of the day is certainly a consideration.   Weekly resistance is not until the 1515 area —– but todays news should cause a lot of volitility in the markets in both up and down fashion.  Support for the remainder of the day is 1471-1474.

In summary — expect wide swinging ranges on both sides until the market sorts out the news.  Should the stock market really tank it could influence short term selling ——but be cautious.

by Bill Downey

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