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Gold holds support after Wednesday’s slide

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Gold holds support after Wednesday’s slide

Gold prices showed vulnerability on Wednesday but were able to rebound on Thursday, after traders liquidated positions during the prior week.  For the first time in the past 5-year the term structure of gold turned to backwardation which shows strong demand for spot gold.

Gold prices were able to rebound despite increases in US yields which have helped the dollar over the past couple of trading sessions.  Yields in the US moved from 2.45% to 2.60% over the past two trading session despite economic data that was relatively tame.  Thursday’s weaker than expected jobless claims number allowed yields to moderate slightly and gold prices to gain traction.

The term structure of gold futures moved into backwardation during the week, for the first time in the past 5-years.  Backwardation is a scenario where the spot gold prices are higher than deferred prices, reflecting strong demand for spot gold.  Generally gold prices are in contango which means that spot gold is less than deferred gold reflecting the cost to hold and borrow gold.  The demand for spot gold has trumped to cost of holding gold, changing a term structure and the demand profile.

Gold prices tested support levels near the 10-day moving average.  A close below 1303 would likely lead to a test of support near 1290.  Resistance is seen near the recent highs at 1350.  Momentum continues to point to higher prices at the MACD (moving average convergence divergence) index prints at its highest level during the past 6-months.  The spread (the 12-day moving average minus the 26-day moving average) is diverging from the 9-day moving average of the spread.  The RSI is printing near 55, which is in the middle of the neutral range and well below the overbought trigger level of 70.

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