Comex Gold Solidly Higher on Short Covering, Bargain Hunting?

By Jim Wyckoff Of Kitco News

MAKE MONEY BLOG$~Comex gold futures prices are trading solidly higher Thursday morning and are seeing short covering and bargain hunting following recent selling pressure that drove prices to a 10-month low of $1,526.70 on Wednesday.

 The market place is seeing a bit of a pick-up in investor risk appetite Thursday morning, following Wednesday afternoon’s release of the minutes of the latest meeting of the Federal Open Market Committee, which hinted that further quantitative easing of U.S. monetary policy is not off the table. June gold last traded up $19.80 at $1,556.30 an ounce. Spot gold was last quoted up $16.40 an ounce at $1,557.25.  July Comex silver last traded up $0.454 at $27.65 an ounce.

Most markets are seeing some gains early Thursday morning, following recent selling pressure. Wednesday afternoon’s FOMC minutes hinted that further quantitative easing of U.S. monetary policy is possible if the economy were to continue its lethargic ways. Further quantitative easing of U.S. monetary policy (QE3) would arguably be commodity-market bullish and possibly stock market bullish, despite the specter of reduced demand prospects due to the sluggish economy. Most traders and investors reckon a QE3 situation would be inflationary down the road. However, many reckoned the monetary stimulus seen by the major central banks of the world during the past 3.5 years would have already produced inflationary price pressures.

For the gold market bulls, they needed to see a day of solid, corrective upside price action. Prices were nearing the key technical level of $1,500.00 an ounce. A move below that major psychological support level would begin to inflict longer-term chart damage and would call into question the 11-year-old price uptrend that remains in place on the longer-term charts. Gold prices around this week’s low also mark a 20% decline from the all-time highs scored last year. Many market watchers determine a bear market to be in place when a market price has backed off by 20%.

The European Union debt and financial crisis is still on the front burner of the market place. After Tuesday’s failed efforts by Greek politicians to form a coalition government, fresh Greek elections are now scheduled for mid-June. Concerns regarding Greece leaving the Euro zone are high, as the Greeks’ commitment to financial austerity is highly questionable. Spanish and Italian bond yields are above 6%, which is stressing the EU financial system.

The U.S. dollar index is trading higher Thursday morning and hit another fresh four-month high overnight. The greenback has benefited recently on fresh safe-haven demand mainly due to the EU situation. The dollar index bulls have good upside near-term technical momentum. Meantime, crude oil futures prices slightly higher Thursday morning on tepid short covering after prices Wednesday hit a fresh 6.5-month low of $91.81 a barrel. Crude oil remains in a bearish fundamental and technical posture. If crude oil continues to trend lower and the dollar index continues to trend higher, sustainable near-term price uptrends in gold and silver will be difficult to achieve.

The London A.M. gold fixing was $1,547.00 versus the previous London P.M. fixing of $1,548.50.

U.S. economic data due for release Thursday includes the weekly jobless claims report, leading economic indicators, and the Philadelphia Fed business survey.

Technically, June gold futures bears still have the solid near-term technical advantage. A 10-week-old downtrend is in place on the daily chart. The gold bulls’ next upside near-term price breakout objective is to produce a close above solid technical resistance at this week’s high of $1,585.80. Bears’ next near-term downside price objective is closing prices below major psychological support at $1,500.00. First resistance is seen at $1,564.40 and then at $1,575.00. First support is seen at the overnight low of $1,538.40 and then at this week’s low of $1,526.70.

July silver futures are seeing short covering and bargain hunting Thursday after prices on Wednesday hit a 4.5-month low. Silver prices are in a 10-week-old downtrend on the daily bar chart. The silver bears have the solid near-term technical advantage. Silver bulls’ next upside price breakout objective is closing prices above solid technical resistance at this week’s high of $29.00 an ounce. The next downside price breakout objective for the bears is closing prices below solid technical support at the December 2011 low of $26.50. First resistance is seen at $28.00 and then at $28.43. Next support is seen at the overnight low of $27.17 and then at $27.00.

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source: forbes.com

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Posted in: Gold