Gold backs down as U.S. stock market rallies

(Kitco News) - Gold prices are trading solidly down in midday U.S. trading Wednesday, as the yellow metal is feeling the pressure of a strong two-day rally in the U.S. stock market, at least as of this writing. Strong closes in the U.S. stock indexes today would provide one early clue that the indexes have put in market bottoms. Such a scenario may or may not be bullish for gold. The bearish case would be that an uptick in trader/investor risk appetite would pull money away from safe-haven gold. The bullish case would be that less fear in the marketplace from a stock market rebound would actually invite more buyers into markets—buyers who have heretofore been scared to enter markets even if they wanted to do so. This includes gold, with new buyers reckoning that even with a bounce in the stock market there are still major headwinds that lie ahead for the global economy. Look for more daily high volatility in the metals markets in the coming days. April gold futures were last down $26.00 an ounce at $1,635.00. May Comex silver prices were last up $0.508 at $14.765 an ounce.

Global stock markets were also mostly higher in overnight trading. The equity markets are buoyed today by news the U.S. Congress has agreed to a $2 trillion financial aid package for U.S. businesses and citizens so negatively impacted by the Covid-19 outbreak. A vote on the matter is likely very soon.

Metals traders Wednesday were still buzzing about the wild price action in the gold futures and London cash (spot) market Tuesday. April Comex gold futures shot sharply higher Tuesday morning amid keen trader concern that London spot gold price quotes had become unreliable or had been halted. U.K. market-makers had ostensibly shut down as gold mines around the globe have curtailed operations due to the Covid-19 outbreak. With the U.K. government-ordered lock-down, many gold market makers were working from home Tuesday, creating even more confusion. The big gold traders in Europe who normally would base their trading decisions on the London spot gold price got spooked when the London spot price was “way out of whack” to the gold futures price—at as much as a $100.00 discount to Comex gold futures at one point early Tuesday morning. The confusion in the London spot market prompted the big European metals traders to rush to buy Comex gold futures as a hedge, as they felt they could not get what they felt were accurate or fair London spot gold prices. Also, there have been many reports the supply of physical gold bullion worldwide is hard to come by. That led to ideas Comex futures traders long (buyers) the gold market in the nearby contracts could hold their positions into expiration of those contracts and thereby take delivery of physical gold, per futures contract specifications. The credibility of this notion was bolstered late Tuesday evening when the London Bullion Market Association (LBMA) and major banks asked CME Group (parent company for Comex) to change physical delivery specifications for gold futures contracts to allow 400-ounce bars of gold, which is the standard for London traders. Currently, CME only allows 100-ounce bars to be delivered. Then later Tuesday evening the CME Group came out and announced a whole new gold futures contract was created, which would allow both 400-ounce and 100-ounce bars acceptable for delivery. The new gold futures contract, if approved by regulators, would start to trade in a few weeks. The upshot of this matter for all traders of all markets is that the London spot gold market had operated efficiently for over 150 years—until Tuesday. Such are the times we are experiencing at present.

The important outside markets today see Nymex crude oil prices modestly up and trading around $24.50 a barrel. The U.S. dollar index is sharply lower again after hitting a 17-year high on Monday. The 10-year U.S. Treasury note yield is trading around 0.85% Wednesday.

Technically, April gold futures bulls have the overall near-term technical advantage amid highly volatile trading. Gold bulls' next upside near-term price breakout objective is to produce a close above solid technical resistance at the March high of $1,704.30. Bears' next near-term downside price breakout objective is pushing prices below solid technical support at Tuesday’s low of $1,560.50. First resistance is seen at $1,650.00 and then at $1,675.00. First support is seen at today’s low of $1,615.20 and then at $1,600.00. Wyckoff's Market Rating: 6.5

May silver futures prices were nearer the session high at midday on more short covering and bargain hunting after hitting an 11-year low last week. The silver bulls and bears are now on a level overall near-term technical playing field. The recent V-Bottom reversal pattern suggests a market bottom is in place. Silver bulls’ next upside price objective is closing prices above solid technical resistance at $16.00 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at the March low of $11.64. First resistance is seen at today’s high of $15.895 and then at $16.00. Next support is seen at today’s low of $14.205 and then at $14.00. Wyckoff's Market Rating: 5.0.

May N.Y. copper closed up 235 points at 220.35 cents today. Prices closed nearer the session high today more on short covering and bargain hunting. The copper bears still have the overall near-term technical advantage, but more gains this week would suggest a market bottom is in place. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at 240.00 cents. The next downside price objective for the bears is closing prices below solid technical support at the March low of 197.25 cents. First resistance is seen at this week’s high of 223.95 cents and then at 230.00 cents. First support is seen at today’s low of 214.95 cents and then at 210.00 cents. Wyckoff's Market Rating: 3.0.

By Jim Wyckoff

For Kitco News

 jwyckoff@kitco.com

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