-- Posted Wednesday, 22 April 2009 | Digg This Article
| Source: GoldSeek.com
June Gold: Open= 884.8 High=884.8 Low=882.8 Last= 890.5 +7.8
It appears that stocks have lost some steam, as today’s rally fizzled in the last half hour of trading this afternoon. Likely, stocks may need to return in order to consolidate gains and find better support at lower levels. Will a retreat in stocks positively impact gold though? This is the nexus of the ongoing debate in gold. If stocks head lower does that signal a weakening economic outlook and thus increase flight-to-quality buying or will it only keep deflation around for longer and suppress gold prices? If stocks head higher does that signal a strengthening economy and thus decrease flight-to-quality buying or will it spur on buying due to fears of inflation?
The past few months has seen gold suffer from too much bullishness and a lack of fresh buyers in the market. Inflation is in check and deflation still is a concern. Adding to the problem for bulls is that the panic in the general public, and the media really, is subdued. What bulls need is fresh fears that this recession could worsen in a more dramatic fashion. With the government’s stress-test of the nation’s largest banks due to be released in early-May, there is a chance for anxiety to return.
Treasury Secretary Geithner says that no banks will ‘fail’ the test, but the market can see between the lines and there will be winners and losers. There will be a good showing or a poor showing overall. And best, or worst, of all, the government will likely come up with some new plan to rescue the banking system. The Obama administration, over the weekend, floated the idea of slyly nationalizing the banks and Monday’s stock market drubbing was the unwelcome response. Odds are that another plan is in the works.
The next few weeks could give bulls time to recover some momentum as shorts may cover their positions ahead of the stress-test announcement. If conditions in the banking sector are far worse than expected we could certainly see panic begin to return and that is exactly what gold bulls need. If deflation trumps inflation currently then the two cards bulls need to pull is fear or a collapse in the dollar. Prices will need to close above $900 to regain some positive technical momentum.
The next downside target for gold is near $860, which would be a 50% pullback. A retracement to the 61.8 Fibonacci level would be to the $820 level. A quasi double bottom could be in the works on the chart, with the two bottoms sitting around $865.
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-- Posted Wednesday, 22 April 2009 | Digg This Article | Source: GoldSeek.com
