Although banks are closed today in honor of President’s Day, gold prices are on the move. As of this post, gold is falling by over $30 per ounce and may test the $1200 level as support. Stock index futures are sharply higher as is the dollar index. Crude oil is slightly higher in quiet trade following huge percentage gains seen late last week.
While gold prices are sharply lower today, low volume could be partially responsible for the steep decline being seen today. Sell stop orders being triggered in a thin market today could be a contributing factor to the drop today.
Chinese markets reopened today after being closed for Lunar New Year celebrations. Japanese markets saw sharp gains as stocks rose over 7 percent on hopes of additional stimulus measures from the Bank of Japan. This comes after Japanese data showed a worse-than-expected contraction of 1.4 percent on an annualized basis for the last quarter.
After recently making a move to negative interest rates, the Bank of Japan may have to come up with more stimulus to try to get its economy on track. The notion of such stimulus measures was cheered on by global stock investors.
Gold is likely seeing selling today as overall risk appetite improves on the idea of more stimulus measures. In addition, the Yen is weakening versus the dollar today and a stronger dollar may be driving some selling in gold, as well.
With Chinese markets reopening, there may also be profit taking being seen. Gold was significantly lower when Chinese markets closed for holiday celebrations and higher prices seen in recent days could be giving some investors reason to sell.
Even with today’s steep decline, however, gold remains in an uptrend. Some analysts believe that dips in gold will continue to be bought as long as the yellow metal remains above previous support in the $1180 area. Some investors could also potentially use the round $1200 level to look to get into or reenter long positions.
Recent equity market weakness and a downtrend in the dollar have been fueling buying in gold. Even with today’s more optimistic outlook, the global economy has a number of issues to contend with and the threat of global deflation and recession remains. Because of this, gold could potentially see limited dips in price and a continuation of its
recent uptrend. From a technical standpoint, the path of least resistance may be higher until proven otherwise.
