May 23rd Gold Trend Analysis

In last nights website update resistance was listed at 1518-1526 and the high so far today was 1516.80 —- support was listed at1496-1505 and the low so far today is 1503.90


London Gold Fix $1,508.50 +$5.75

While the June gold contract initially managed to claw out a fresh new high for the move overnight, the market was unable to hold the highest price probe since May 11th. Clearly renewed Euro zone debt concerns are indirectly magnified by weaker than expected Euro zone numbers and also because of new concerns of volcanic ash, which served to disrupt transportation on a very broad front last year.

Asian equity markets came under pressure overnight, with Chinese stocks falling to levels from 3 months ago after May factory activity fell to levels of 10-months ago. The Japanese Nikkei fell to a new 5 week low after being down over 1.5% overnight. Both service sector growth and manufacturing activity in the Euro zone came in weaker than expected. These global PMI figures cast a negative view for US equity markets to start the week.

The US Dollar is sharply higher against the other major foreign currencies and was up over 1.0% during the initial morning hours. Concerns over Euro zone debt, after Fitch slashed Greece’s debt rating by 3 notches on Friday just before EUROPE closed let to the initial gold spike last Friday afternoon. Then S&P lowered their rating on Italy to stable on Saturday has bolstered demand for safe assets like the Dollar. These new signs of a growing bailout or more to the point — a DEFAULT — no matter what they call it is spreading fears of a contagion in Europe.

With slow growth evidence and general market perception seen from both China and Germany overnight, that would seem to give the slowing mentality even more credence and that in turn has applied pressure on stocks and commodity markets this morning with Oil off 2.50, Wheat off 10 cents, Gas and heating oil 3-7 cents, copper off 10 cents and the US Stock market off 125-150 points in the first half hour of trading. In fact — THE ONLY SOLDIER THAT IS HOLDING UP THIS MORNING IS THE GOLD MARKET as it holds against the US Dollar and is making new highs against the Euro.

In Spain the current Govt officials suffered an election rout on Sunday — as the anger over austerity widens and political parties get ousted. One of the things this moring is ITALIAN RATES ARE RISING as European banks hold a MUCH HIGHER debt level in ITALY than Greece, Port, Spain. Thus Italian rates much be watched closely here — if the contagion spreads here it will greatly enhance debt pressure.

Given the fear of slowing, news of potential gold mine srike threats in South Africa might become an issue ahead, as workers are supposedly asking for a double digit wage increases. The Commitments of Traders Futures and Options report as of May 17th for Gold showed Non-Commercial traders were net long 194,980 contracts, a decrease of 17,984 contracts. The Commercial traders were net short 239,620 contracts, a decrease of 20,331 contracts. The Non reportable traders were net long 44,641 contracts, a decrease of 2,347 contracts. Non-Commercial and Non reportable combined traders held a net long position of 239,621 contracts. This represents a decrease of 20,331 contracts in the net long position held by these traders.

Going to the charts:

Today’s look is an hourly chart as we zoom in to the purple channel line and the action with retracement levels. As we mentioned — Gold is the only thing really holding up so far in the GLOBAL sell off — so far. This is important as gold so far is implying safe haven status along with the US Dollar. We’ve discussed on the website the Short term weaker cycles we follow were due to turn higher last week with the ideal day being the 17th and as we can see by the chart — so far that is playing out.

From a technical perspective — with the exception of the pullback low at 1472 — price has actually been holding the 1480-1485 levels rather well. Observe the pullbacks are holding just below the 23% retrace level on the chart near 1490. On the upside, Friday’s Greek debt downgrade announcement sent gold higher above the 1506 area where the 38% retrace level is at. PULLBACKs so far over the past 16 hours has twice tried to move below the 38% line at 1506 — but both probes has shown support at the 1503 area and price keeps pushing back over 1510. The next key level to watch is the 50% retrace area at the 1520 area and the May 11th high at 1526.

While gold is holding up so far — it is not out of the woods just yet and the move since the low of May 16th still has to be catagorized as a bounce. This 1506 level at the 38% retrace is probably the PIVOT point to watch over the course of the day. As long as price is above 1485-1489 — the uptrend and the bounce is still in play. A close below that area and then the 1470-1475 would put the advantage back to the downside.

Resistance for the remainder of the day is the 1518-1525 area and support is the 1501-1506 area and the lower purple trend line. In summary — with a global selloff — and a stronger dollar, the upside in gold might be limited today. The 1521-1525 is the FIRST KEY AREA OF RESISTANCE for this week that needs to be watched. Depending on how the debt situation plays out this week — we might see an initial peak near 1520-1525 —-a pullback towards 1500 —– and another attempt at moving higher as the week moves on.

AS LONG AS Oil – now off 3 dollars, Copper off 16 cents, and grains under some pressure — we should remain cautious. As we mentioned — the fact that gold is refusing to buckle so far — is very encouraging and would suggest higher prices on any commodity rebound.

In summary — gold is the lone soldier so far today —and while the upside has a slight advantage — WITH copper off 15 cents and crude down 3 dollars and stocks off 150 points on the DOW, —— we should be very cautious here and keep it light as we can’t rule out pressure coming to gold if the downside in other commodities accelerates. If gold does hold — and commodities begin to bounce — it may lead the way up, but until then — lets stay cautious here.

Watch the 1501-1506 area —- it seems important to the downside. On the upside — the 1518-1525 area is important first resistance.

by Bill Downey

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