Commentary: Gold continued to correct on Tuesday, shedding $20.90, or 1.54%, to settle at $1,339.70. Prices got as low as $1,329.70, which is a full $95 below the all-time high set last week at $1,424.60. Given the highly speculative nature of gold’s advance, it isn’t surprising to see this trade unwind so quickly. Moreover, as we’ve been pointing out, the rise in gold prices has not been supported by a corresponding rise in gold ETF holdings.
The specific driver of gold price action on Tuesday was a general retrenchment of risk appetite across financial markets, as well as an across the board advance in the US dollar. The task now is determining where this correction ends and if any buying opportunities emerge. Because gold remains extremely elevated, it will be awhile before we are comfortable accumulating the metal even for a trade. At this point, it may be wise to turn to technical indicators for guidance.
Technical Outlook: Prices have breached rising trend line support set from late July. Sellers now target $1322.39, the 38.2% Fibonacci retracement for the 7/28-11/9 advance. The broken trend line, now at $1356.46, has been recast as near-term resistance.
Silver - $25.37 // $0.11 // 0.42%
Commentary: Despite the steep drop in gold prices, silver managed to finish essentially unchanged on Tuesday. Prices did test lower levels near $25 in early trade, but settled at $25.48. Given that silver has fallen so precipitously in recent sessions, this pause is not surprising, but if gold continues to decline, expect silver to tag along.
The gold/silver ratio fell slightly to 52.7, but remains higher than levels earlier this month near 50. (The gold/silver ratio measures the relative performance of the two precious metals. A higher ratio indicates gold outperformance while a lower ratio indicates silver outperformance).
Technical Outlook: Prices have stalled above support at $25.33, the 61.8% Fibonacci retracement of the 10/22-11/09 upswing, with a Doji candlestick hinting a corrective upswing may be in the cards. Near-term resistance lines up at $26.10, the 50% Fib, while renewed selling targets the 76.4% level at $24.37.
