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Gold Consolidates After Epic Gains

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Gold Consolidates After Epic Gains
man sitting on gold bars

A tenuous calm greets the markets this morning as gold consolidates after eye-popping gains yesterday. The markets had a preview of what a global "black swan" event would look like Thursday, as a perfect storm of bad news and fears came together to horrify investors. This led to a panicked run for ultra-safe havens, such as Treasuries, gold and the yen, but curiously enough, not the US dollar.

Gold rose 5% yesterday to a 12-month high. It is set for its largest weekly gains since the start of the global financial crisis in 2008. This will be its fourth weekly gain in a row. Gold is already up 20% for the year, compared to a 10% loss for all of 2015.

Gold closing price through Thursday, Feb 11, 2016 Gold closing price through Thursday, Feb 11, 2016

Gold prices this morning are seeing totally expected and understandable profit taking after yesterday's breath-taking gains. Spot gold started the week at $1,172 and closed Thursday at $1,246, logging a very nice $74 profit.

While markets seem calmer this morning as gold consolidates, there is still a bit of "Kentucky windage" in trying to pin down technical levels with volatility lurking just under the surface. Today, we'll call first support at $1,231 an ounce. If that falls, $1,225 should be solid support. This reflects the presumption that investor sentiment is unlikely to reverse course so drastically after this week's solid gains. First resistance should be seen at yesterday's close at $1,246. Yesterday's high of $1,263 marks the next hurdle.

Cleaning Up After The Global Storm

bottom-fishing

Equities in Europe and the US are picking up the pieces after yesterday's carnage, as the bottom fishers come out to snag some bargains. Asian markets, still reeling from yesterday's selloffs, didn't join the party. The Nikkei index in Japan closed down 4.84% today.

Globally, stocks are officially in a bear market after yesterday's bloodletting. The MSCI World Index is down 20% from its last high.

Both oil and the dollar, which were beat down with stocks yesterday, are staging a rally this morning. The DXY dollar index is up a half-percent, to claw its way barely over a reading of 96.  Oil futures decided to believe today's "Jedi mind trick" from OPEC, and are up sharply from yesterday's curb stomping. At 11am Eastern, Nymex crude is up $2.00 (7.63%) to $28.21. Brent futures are up $1.79 (5.95%) to $31.88.

bank

The panic over possible failures by some of the world's largest banks in Europe has subsided this morning. The panic had crossed the Atlantic and pummeled US bank stocks as well, since the financial system is so interconnected now. The reprieve in bank stocks and energy stocks is helping Wall St recover today.

Deutsche Bank, which had touched off the nightmare in the financial sector, has announced a stock buyback, which has helped calm nerves. In addition, Jame Dimon, CEO of JP Morgan, announced that he has bought $26.6 million worth of shares in the bank.

Return of the Jedi Chinese

china-flag-shanghai

Next week marks the return of China after the week-long Lunar New Year holiday. The delayed reaction of the Shanghai stock market to recent events should set the tone for the first part of next week. Gold investors will be watching to see if gold prices $75 higher than the last day of trading in China will dent demand in the Middle Kingdom, or will Chinese investors get bit by the "fear bug."

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product

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