Don't Miss This Under-the-Radar Millennium Level for Gold

Looking at the price of gold in kilograms reveals a major round number in play

by Bernie Schaeffer

Published on May 8, 2018 at 7:55 AM
Updated on May 8, 2018 at 7:55 AM

Gold prices have been drifting steadily lower in recent months, as traders have lost some of their appetite for "safe haven" investments amid an increasing shift toward diplomacy on major geopolitical issues, including North Korea's denuclearization and the ongoing U.S.-China trade discussions. The COMEX June futures contract, which currently holds the "most active" mantle, has declined more than 4% from its Jan. 25 year-to-date high close at $1,373.40 an ounce.

This past week was particularly notable for those keeping a close eye on the gold charts, as the June futures contract notched two consecutive daily closes -- on Tuesday and Wednesday -- below the $1,310 level, which had provided intraday support amid the March 1 sell-off after previously marking tops for the contract last November. And at Tuesday's session low, June gold was within just a couple points of the round $1,300 century level.

And there was an even bigger round number in play for gold last week -- namely, the $42,000 per kilogram level. Simultaneous with the mid-week breach of $1,310 per ounce, spot gold fell to collect two consecutive daily closes south of $42,000/kg before reclaiming this level by Thursday's close. The $42K area had previously marked intraday lows in January and March, reversing the role it played as a ceiling in October and December.

Looking back even further, we find that a similar period of consolidation atop $42,000/kg occurred back in mid-2016, just prior to a precipitous fourth-quarter drop in gold prices that ultimately terminated around the $36,100 level in mid-December -- yielding a peak-to-trough haircut of about 18% for the precious metal.

So we might consider gold's mid-week break of $1,310/ounce and $42,000/kg to be a "warning shot," in the sense that this support area appears to be weakening, and the last major breach of this zone translated quickly into substantial downside. Add to this the fact that May has historically been the most bearish month of the year for the SPDR Gold Shares (GLD) since its inception, with the fund's average return for the period amounting to a loss of 1.3%, and there's just cause to proceed with caution on gold in the short term.

gold price per kg chart

Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, May 6.

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