Gold jumps but 200-day average limiting the upside – for now

Gold prices were trading sharply lower first thing this morning as investors again showed a greater appetite for equities over the safe-haven metals after earnings results from Apple and Facebook both came in much better than expected last night. However, a sharp reversal followed in the afternoon which saw both gold and silver prices swing into the positive territory. It is difficult to pinpoint exactly what caused this reaction. Although some would point to news headlines concerning Ukraine, which, admittedly, did cause Brent crude prices to rally, this could not have been the sole reason. After all, copper prices, which has little, if anything, to do with the situation in Ukraine, jumped too. I think it was simply a case of unwillingness from the sellers to commit to prices below $1276/7 and $19.00 for gold and silver, respectively.

The $1276/7 level was the base gold had formed at the start April which was revisited earlier this week. As the price of gold was unable to hold below this level, speculators moved quickly to close (some of) their sell positions which caused prices to rally sharply. This so called short-squeeze saw the price of gold climb from a low of $1268 earlier in the day to a high of nearly $1300 where the 200-day moving average has acted as resistance. The metal now needs to break above this level as well in order to catch the attention of fresh buyers. It has also been encouraging to see there were no further outflows this week from the world’s largest gold-backed ETF, the SPDR Gold Trust. However, unless ETF investors come back in force, the prospects of sustained gains for the yellow metal appear unlikely.

Figure 1:

Source: FOREX.com.

Figure 1:

Source: FOREX.com.