Metals Stocks: Gold settles at lowest since June as ‘death cross’ chart pattern signals bearish trend

Metals Stocks: Gold settles at lowest since June as ‘death cross’ chart pattern signals bearish trend

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Gold futures saw a fourth loss in a row on Wednesday, with prices logging their lowest finish since June, as a death cross chart pattern formed — signaling a potential longer-term downtrend in the metal’s prices.

The most active gold futures contract on Wednesday mark its first death cross since June 2018, according to Dow Jones Market Data, with the 50-day moving average at $1,856.46 and the 200-day moving average at $1,857.67.

A death cross occurs when the 50-day moving average crosses below the 200-DMA, which is widely viewed as a dividing line between longer-term uptrends and downtrends.

The death cross “isn’t an ideal development for gold,” especially since that hasn’t happened in more than two years, said Craig Erlam, senior market analyst at Oanda, in a market update.

Higher U.S. Treasury yields are “making investors a little nervous and are generally positive for the dollar,” he said. A move back above 91 in the ICE U.S. Dollar Index DXY could be a bullish signal for the dollar. “This is naturally a negative development for gold.”

Yields in U.S. Treasurys, seen as a direct haven competitor to gold that also offers a coupon, have been touching their highest levels in months, making a more compelling case to own bonds compared against commodities that don’t offer a yield.

The 10-year Treasury note yield TMUBMUSD10Y, 1.295% touched a high of 1.33% Wednesday, putting the government bond near its highest level since late February of 2020.

Rising interest rates have created downward pressure on gold as they make the dollar and bonds “relatively more attractive as stores of value than gold,” said Jason Teed, co-portfolio manager of the Gold Bullion Strategy Fund QGLDX. Still, a record high price for the metal is “not outside the realm of possibility” if interest rates “stay suppressed and inflation concerns increase as the economy recovers.”

April gold GC00, -1.47% GCJ21, -1.47%  fell $26.20, or 1.5%, to settle at $1,772.80 an ounce, after skidding 1.3% on Tuesday. The yellow metal booked the lowest finish for a most-active contract since late June.

“Overall, markets are optimistic about an economic recovery” as the rollout of the COVID-19 vaccine continues, David Russell, director of communications at GoldCore, told MarketWatch. “Updates on the next round of stimulus may well continue the asset class inflation that we are currently seeing and some of this is sure to flow in to gold.”

The market, however, will wait to see how the death cross plays out, he said. Technically, gold is “looking soft,” though there should be good support around the $1,755 to $1,765 level and below that, support is at $1,700, said Russell.

Meanwhile, minutes of the Federal Open Market Committee January meeting released Wednesday after the gold futures settlement, showed that committee members have seen an increase in downward risks to employment and inflation.

Losses for gold also follow U.S. economic data Wednesday, with retail sales up 5.3% in January, the largest increase in eight months — a positive sign in regard to the health of the consumer amid the COVID-19 pandemic. Industrial production also rose 0.9% in January, to mark a fourth straight month climb.

Also among the Comex metals Wednesday, silver for March delivery SI00, +0.13% SIH21, +0.13%  settled a penny, or less than 0.1%, lower at $27.315 an ounce.

March copper HGH21, -0.23% lost nearly 0.4% to $3.8205 a pound. April platinum PLJ21, -1.52% shed 1.7% to $1,257.70 an ounce and March palladium PAH21, -0.74% finished at $2,369.70 an ounce, down 0.8%.

Credit: MarketWatch

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