Weakness in Gold - Market Analysis for Mar 11th, 2010

Apart from the fundamentals that indicate the global economy, in general, and China and the U.S, in particular, might be showing signs of resurgence after over a year of “government stimulation,” the last 24 hours of trading has damaged the near-term technical condition of spot gold prices and the SPDR Gold Shares (NYSE: GLD). Yesterday, gold reversed from early morning strength as prices sliced beneath an important 5-week uptrendline (at approx. $1109). The weakness beneath the trendline sustained throughout overnight trading, leaving spot gold prices vulnerable to additional weakness that will likely press towards a test of the prior upside pivot low at $1088.10 on Feb 25 – which must contain the pressure to avert a plunge that revisits the Feb 5 low at $1043.80. Let’s notice that the action in gold is occurring despite relative stability in the Dollar Index (DXY), rather than in reaction to a stronger greenback. Once again, this divergent action reminds us that the behavior of gold so often now is disconnected from the directional moves of the DXY, and more a function of the behavior of a risk-asset class beholden to momentum swings (read: “hot directional money flows”) as well as to global macro fundamentals (read: China). Be that as it may, gold prices must claw back above $1116 to neutralize yesterday’s technical damage.