What’s up with Gold Prices?

gold prices analysisBy Andrew Nyquist    Many Gold bugs have been disappointed by the yellow metals intermediate period of underperformance. Gold prices have fallen for the past 6 months and have underperformed the market for the past 18 months. Furthermore, the recent drop in Gold prices has pushed the metal closer to a major support zone. Many are asking just what is going on with Gold prices here?

I’m no expert on the fundamentals of Gold, but if “price” has been talking of late, it is saying that Europe and the Euro/Dollar relationship are important factors. The short version goes like this: Too much debt in Europe (and in the West, in general), and the markets know this; and they have been anticipating potential for further crisis in Europe. So why wouldn’t this political drama and economic uncertainty lead to an immediate rise in Gold prices? Well, my intermediate term take on Gold is that we have a debt crisis and, more importantly, we are seeing a capital flight to the US Dollar and US Equity Markets.

And as long as the dollar is rising, US stocks remain elevated, and the Euro remains in existence, Gold will continue to act confused… and it may be subject to further price discovery. This does not mean that Gold will be untradable or that the current setup won’t change. But, investors also have to remember that Gold is an asset class that competes for investment dollars. With this in mind, investors should continue to monitor “price,” taking cues from the metals reaction and behavior around key support and resistance levels. As a trader, though, I am watching $1520 support on the downside, as this will be a tough nut to crack; the support zone between $1520-$1580 may provide a nice short-term setup to the upside. Overhead, I am watching the 6 month downtrend line.

gold prices chart

However, investors should take note that any drop under 1520 will do technical damage and indicate lower prices intermediate term. At the same time, this would offer a chance for investors to add to existing positions or leg into new ones. Support resides in and around $1400, $1200, and way down near $1000. Although $1000 is not even a consideration for most investors, it does mark the plateau from which Gold prices took off. Trade safe, trade disciplined.

gold prices, chart with support levels

For more on the technical price action in the Dollar (and the Euro), read contributor Andrew Kassen:

  @andrewnyquist and @seeitmarket

No position in any of the mentioned securities at the time of publication.

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