May 20th Gold Trend Analysis

In last nights website update — initial resistance was listed at 1497-1509 and the high so far today is 1504.20 —- initial support was listed at 1484-1489 and the low so far is 1486.50


London Gold Fix $1,502.75 +$14.00

With the June gold contract early this morning managing a fresh new high for the move, it hasa so far only reached first key resistance.

Indian gold prices were strong overnight perhaps because of favorable press coverage overnight that pointed to China as the world’s largest consumer of gold and also because of German inflation readings. Because of the favorable Chinese gold demand talk overnight, the gold trade probably discounted news of a rise in Chinese gold production for the first three months of this year. Some Asian interest of gold overnight might have been from increased macro economic concerns from Japan, which released some very precarious economic numbers overnight. While the commodity market inflation vibe is generally alive again this morning, price gains across the entire commodity complex are not as conclusive as was seen early in the Thursday US trade.

However, the outside market environment this morning remains in a neutral price zone 1485-1505. The Dollar traded in a tight range all week beween 74.80-75.80, and commodities, which were generally higher earlier, have turned down with Oil down $2 dollars,

US Stocks are getting pumelled in the first hour down 100 pts on the Dow as retail stocks have been hit hard. The US economic report slate is very thin this morning and therefore the early bias might not be easily altered and therefore the gold market is could take some direction today from the US energy trade. The Euro debt seems to be taking center stage.

In a minor supportive note, the gold trade overnight saw news that official Russian gold reserves rose on the month, as that could rekindle talk of central bank interest in gold.

The Bank of Japan left benchmark Japanese interest rates unchanged at today’s monetary policy meeting, but signaled that their policy would remain accommodative. An official with the People’s Bank of China stated that the Yuan would gradually become fully convertible. German PPI during April was up 6.4% year-on-year, higher than market expectations. There are no major US economic numbers to be released this morning.

In late breaking news GREEK DEBT just got another DOWNGRADE from Fitch —— nice time to put that out — 1 hour before Europe closes for the week…………. and that is putting HEAVY pressure on the EURO —down 160 pips —and is supporting the dollar index.

Going to the CHARTS:

There is not much to report on since yesterday. Our initial resistance levels have kept gold at bay all week and the 1485-1489 area we discussed as initial support since Wednesday has also provided the lows since then. Thus the market remains in “neutral” mode as we get ready to close out the week. It looks like gold is going to hold off decision making until next week. Keep in mind that JUNE OPTIONS EXPIRATION is next Wednesday —and the highest open interest is the 1500 CALLS —- There were over 15K open interest last I looked — and are all subject to expire Wednesday. Today’s take down from 1504 all the way to 1585 as New York opened —and this is allowing the OPTION BOYS to cover all those calls back for pennies as the premiums collapse.

As far as the chart — we can see that gold has traded all week between the 23% and the 38% fibonacci retracment levels. THE 1480-1485 AREA IS KEY HERE —– any breaks below 1477.50 on a CLOSING BASIS would leave the DOWNTREND potential alive going into Monday. On the upside, PRICE NEEDS TO CLOSE ABOVE the 1506-1510 area to begin favoring the short term upside. RESISTANCE is the upper dotted trend line ——and support is where the two dotted lines cross. CLOSES below there today would keep the bear tilt alive.

Reading — Neutral in the 1480-1510 area — waiting for gold to make a move.

BE CAREFUL HERE — THE DEBT FACTOR IS SPREADING THIS MORNING TO IRELAND AND OTHERS SINCE THE GREEK DOWNGRADE —- which means a lot of discussions this coming weekend that could be significant come Monday depending on the tilt. We COULD GET HIGH volitility near the gold close in Europe at 11:30 EST —-and then again when the New York Comex closes at 1:30PM EST.

by Bill Downey

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