May 3rd Gold Trend Analysis

In last nights website update resistance was listed at 1555-1563 and the high so far is 1551.50 — support was listed at 1533-1538 and the low so far is 1534.80.   Technically — the open in Asia was 1516 on a spike open that lasted two minutes and then traded to 1545.  2nd tier support on the web update was listed at 1515-1525.

Volatility in the gold market continues to be two sided, with the initial bias today pointing downward. News of a rate increase in Indian official interest rates (the 9th since March of last year) might be serving to undermine the gold market, as rising interest rates are generally seen as an inflation tempering development. With weakness in equities and a host of commodity prices this morning, the outside market environment for gold is slightly negative.

It would seem like the bin Laden situation is already in the rear view mirror (for the moment), with that event surprisingly being seen as a bearish development at times yesterday. Many gold traders think that the death of bin Laden is not cause to permanently remove safe haven status.

The gold market could still come alive off US debt headlines but in the early action today, the gold market doesn’t seem to be poised to take the US to task yet over its lack of fiscal restraint. Scheduled US data flow today is generally expected to depict positive growth action in the US economy but the gold market reaction might be limited to the data unless the US Dollar manages to extend its initial gains off the data.

While equity markets in Asia were mixed during overnight trading, stock indices in Europe are generally weaker this morning. US equity markets opened today’s session with moderate losses. The Dollar is slightly stronger against most of the major currencies during overnight trading, although posting a loss versus the Yen.

Canada elected a majority Conservative government, with the left-wing New Democrats  becoming the main opposition. India’s central bank raised benchmark interest rates by a higher than expected 0.50%. A business newspaper is reporting that Portugal may need more that 100 billion Euros in loans from the IMF and the EU, well above the initial target amount. Euro zone PPI during March was up 6.7% year-on-year, in-line with expectations. A survey of UK Manufacturing during April was 54.6, weaker than expected. Major US economic numbers to be released this morning include March Factory Orders at 10:00 AM EST — which was reported higher.

Going to the Charts:

The outlook coming into today from last nights update was for gold to trade mostly in the 1535-1545 area as each side looks to establish support and resistance.   So far that scenario has played out in the last 16 hours with two tests of 1535 and a few probes slightly above 1545.  The 1530 -1535 area is first support for the remainder of the day.   With last nights low near 1515 and the 38% retracement of this uptrend not until 1501 — the potential for price to continue lower this week is the overall favorite.

Our best take at the moment is for price to continue in this 1530-1550 area going into mid week Wednesday.  Short term trends favor the consolidation and pullback scenario.  There is additional support in the 1501-1515 area should we get a hard into Wednesday.

Resistance for the remainder of the day is the 1548-1555 area — and support is the 1528-1533 area at that LOWER red channel line.  The pullback scenario has the current advantage.  Watch that lower red line area.

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."