Gold gained slightly overnight, even as Chinese government intervention in their stocks and currency markets quieted fears of an imminent equity collapse. Gold held on to most of those gains at the New York open, despite a sharp dollar rally fueled by a plunging euro.
Gold futures closed up $14.60 yesterday, at $1,074.80. Spot gold closed up $13.40 at $1,074.40. Gold reached a four-week high of $1,084 in intraday trading, before crude prices faltered and the dollar grabbed an afternoon rally.
Bad Day For Stocks
The global equity rout started in China, where trading was halted for 15 minutes after the Shanghai Composite index fell by 5%. Knowing that trading for the day would be cut off if the index fell 7%, a flood of panicked sellers hit the trading floor, trying to sell ahead of everyone else. This resulted in the 7% limit being hit in a matter of minutes, causing the exchange to close early.
This panic spread to Europe, then the US, where the Dow was down over 400 points by 10am. The Dow dropped to its worst first day of trading since 1932 before recovering slightly. The S&P 500 saw $289 billion go up in smoke, as it fell 1.5% for the sixth-worst first trading day since 1927.
Graphic of the first 30 minutes of trading in New York
Although Chinese stocks closed today just below unchanged, everyone knows that it was due to government intervention. This fact is keeping traders in Europe and the US antsy, though some early bargain hunting may manifest itself.
Cold War or Hot in the Middle East?
Bahrain and Sudan moved to show solidarity with the Saudi monarchy yesterday by severing diplomatic ties with Iran. Kuwait followed by recalling its ambassador. This regional unrest began when Saudi Arabia beheaded 47 people over the weekend, including a prominent Shiite cleric arrested in July. This sparked Shiite riots throughout the region, even spreading to India. Most notably, a mob in Tehran torched the Saudi embassy before being driven off by police using water cannons. This led to Saudi Arabia cutting all diplomatic and trade ties with Iran, though Iranian pilgrims making the Hadj will still be allowed into the country.
This escalation is much like waving a match over a powderkeg, with the Sunni oil monarchies on one side, and their domestic Shiite minorities and "defender of Shia" Iran on the other.
Technical Outlook for Gold
Two major factors for gold today are the sharp dollar rally, and the fact that the global oil glut is so bad, crude prices can't even rise over the Persian Gulf unrest.
Despite this, gold is holding between $1.075 and $1,080 an ounce. A close above $1,081 would go a long way towards breaking the hold of the bears in the short term. First resistance is seen at $1,083, then $1,088. First support is at $1072, then $1,061.
The latest Commitment of Traders shows that gold and silver February futures contracts still hold a net long position, but are working back towards equilibrium. Gold shows approximately 19,100 net long contracts, down from 26,400 (-27%.) February silver shows about 20,700 net longs, down from 23,400 (-12%.)
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.