(Kitco News) - After Wednesday’s nearly 2% drop in gold, investors have a one-day reprieve as U.S. markets are closed for Thanksgiving, and according to some analysts, the outlook is mixed.
Among technical indicators, the gold market saw a fairly bearish signal on Wednesday as priced dropped below $1,200 an ounce and the 50-day moving average slipped below the 200-day moving average, forming what is called a death cross, a signal of continued downward momentum in the near-term.
Wednesday markets settled the session at $1,189.30 an ounce, its lowest level since February.
Colin Cieszynski, chief market strategist at CMC Markets Canada, said that while momentum could favor lower prices in the near-term, he does see signs that the yellow metal is due for a bounce.
“When gold broke through $1,200 yesterday, it triggered a mass of automated selling and that has pushed the market into extremely oversold territory,” he said.
Cieszynski added that gold is now in the 50-62% retracement range from its December 2015 lows to its July highs, explaining that traditionally, this technical box is where most corrections are halted.
“The key will be $1,170. If gold can hold $1,170 then I think we could see the market bounce back. But if this price doesn’t hold then gold is in trouble,” he said.
Another positive Cieszynski highlighted for gold is the U.S. dollar, which he said is in extremely overbought territory and due for a correction.
“I think the U.S. dollar has been too aggressive in pricing in Fed rate hikes and I think we are eventually going to see a pullback,” he said.
Sam Laughlin, precious metals trader at MKS Switzerland SA, said in a research note Thursday that he is also looking for gold to test support at $1,173 an ounce. However, he added that it will be difficult for gold to push past resistance now at $1,200 an ounce.
Chris Beauchamp, market analyst at IG Markets, said that he could see gold prices fall as low as $1,110 an ounce in the near-term; however, he also agreed that the market is severely oversold.
“With the price so heavily oversold some kind of rebound, if only as far as $1220, is still possible. If a rally does materialize, it could go as far as $1250 in the short-term,” he said.
By Neils Christensen of Kitco News; nchristensen@kitco.com
