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David Becker

 

Gold prices dropped on Friday as the dollar gained traction while U.S. yields fell. This decline followed a weaker than expected U.S. retail sales report and December PPI, which was in line with expectations. After breaking out earlier in the month, gold prices have reversed course and are poised to test target support.

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Technical analysis

Gold prices slide on Friday and are testing an upward sloping trend line that comes in near 1,825. A close below this level would lead to a test of the November lows at 1,764. Short-term momentum has reversed and turned negative as the fast stochastic generated a crossover sell signal. The current reading on the fast stochastic is 16, below the oversold trigger level of 20. Medium-term momentum has turned negative as the MACD (moving average convergence divergence) line generated a crossover sell signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line). The MACD histogram is printing in the red with a downward sloping trajectory, which points to lower prices. The RSI also broke down which reflects accelerating negative momentum.

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Retail Sales Fall

U.S. retail sales dropped in  December as lockdowns to battle the spread of COVID-19 undercut spending. According to the U.S. Commerce Department, Retail sales dropped 0.7% last month. Data for November was revised down to show sales declining 1.4% instead of 1.1% as previously reported. Expectations had been for retail sales to be unchanged in December.

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