Precious metals are down for a second day as investors appear to be buying equities and possibly the dollar in favour of perceived safe-haven assets. Index futures suggest the Dow will open above 20,000 for the first time while the S&P 500 is set to climb to a new record high. In one way or another everything also hinges on the direction of the dollar. As reported yesterday, the Dollar Index is currently testing a critical technical level at 100. A decisive break below this level could send almost everything priced in the dollar higher, including gold and silver. But it appears as though the dollar is making a comeback, and if it bounces back sharply then buck-denominated precious metals will likely come under further pressure.
From a technical point of view, gold – just like the dollar – is currently consolidating between two key areas, so it is poised for a big move but at the moment it is not very clear which direction the move will be. Support comes in the $1194/$1200 region while resistance is at $1220 – this being the 38.2% Fibonacci retracement level and also a pivotal support/resistance level from the past. If this turns out to be the high for gold this quarter then it would represent a shallow pullback (38.2%), meaning the potential falls could be huge. If the metal does break $1194 support then a drop to at least $1180 would become likely, possibly a lot lower over time. Conversely, if gold breaks $1220 resistance then it will likely go up sharply, towards the next bullish objective at $1250, which was previously support.
Source: eSignal and FOREX.com.