May 17th Gold Trend Analysis

In last nights website update resistance was listed at 1497-1503 and the high so far today has been 1497.50 — support was listed at 1476-1483 and the low so far today is 1475.50

London Gold Fix $1,495.50 +$0.50

While the gold market was showing initial positive action earlier this morning and gold was able to outperform silver in the prior trading session, the New York boys were waiting in lie.

The gold market also saw talk that a noted investor and trader had dumped a noted portion of his gold holdings in the 1st quarter of this year. The gold market is taking direction from Home Depot this morning as comparative store sales declined and revenues at that company might have disappointed some analysts. Major US economic number released this morning include April Housing Starts were down 11% and prices year over year down 7.5%, April Industrial Production and Capacity Utilization fell slightly or is stalled at best. Surveys of store sales released during the session shows came in lower as well. Walmart reported its 8th straight quarter of declining sales.

A minor decline in holdings at a key gold derivative instrument overnight might also be seen as a minor negative to gold futures prices this morning. The weak US data could spark renewed selling of commodities off the threat of slowing.

While equity markets in Asia and Europe were mixed during overnight trading, US equity markets opened today’s session with moderate losses.

The Dollar is stronger against most of the major currencies and as we discussed on the weekly button Sunday night — “Whether its short covering, the Bin Laden Bounce — or a new trend developing for a move towards the 80 area, the US Dollars rise had all other markets going in opposite directions in the short term last week. Going forward — so far this is only a bounce — but one that must be watched carefully as the markets are so biased on the bear side — that it wouldn’t take much to incite short covering.”

The Bank of Japan warned their nation’s economy was in a “severe” state due to the aftereffects of the Sendai earthquake. Euro zone Finance Ministers are prepared to ask Greece’s creditors to extend the maturities of their bonds. UK CPI during April was up 4.5% year-on-year, higher than market expectations. A survey of German economic sentiment during May was at 3.1, lower than forecasts.

Going to the Charts: (Gold Moving averages 34 day (1489) 55 day (1461) 89 day (1424)

Today’s chart is a zoom of the move from Feb 2011 showing just the purple channel that gold’s momentum has been following. We’ve discussed this 1470-1475 area and the lower purple channel line along with the 38% retracement of this uptrend. This is now the THIRD test of the 38% retrace — as the market is trying to hold this important area. With the lower channel line having arrived at this area — and right on the ideal day (May 17th) where the weaker cycles are due to end (plus or minus 72 hours) this area has a few options.

The first would be the market holding this area and making its short term lows. A move back above the 1510-1515 area would be an indication that the stronger trend is kicking in.

The second would be a continued drop where price would either make its way to the 55 day average at 1461 — or the next retrace level at 1442.

The third option would be a waterfall drop to the 1380-1410 area where the lower dotted downtrend line at the 61% retrace level resides.

THAT LOWER PURPLE CHANNEL LINE is the key area to watch —– a close below that area extends the bearish potential. At the moment —the downtrend is still favored —especially on a break lower from this important area. There are a lot of stops below this line that the bear’s want to take out. We can already see the slight break of the purple line this morning —and there are a lot of nervous short term bulls. UNTIL WE SEE A PRICE reversal — we have to continue to favor the downside. First targets on a break lower is the 1461-1465 area and the 1440-1450 zone.

by Bill Downey



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"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."