Gold Price Prediction – Prices Consolidate as Short Term Momentum Turns Negative

Gold appears to be benefiting from the risk-on trade, which has helped equity prices rally. The dollar whipsawed moving higher and then lower and then settling upon the session. US yields moved lower, following worse than expected manufacturing and consumer economic data. The markets expected bad news, but the shocking reality of how bad it really is, weighed on riskier assets and generated headwinds for gold. Gold volatility, reflected by the VIX of gold, is hovering near the 29% level which is well above the 12-month average near 15%.

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Technical Analysis

Gold prices surged consolidated after hitting a 7-year high and is still poised to test target resistance near the August 2012 highs near 1,791. Support on the yellow metal is seen near the March highs at 1,703. Additional support is seen near the 10-day moving average at 1,662. The trend is moving higher. Short term momentum has turned negative as the fast stochastic generated a crossover sell signal. This happened as the fast stochastic is printing a reading of 89, well above the overbought trigger level of 80, which could foreshadow a correction. Medium-term momentum remains positive and could begin consolidating but the MACD (moving average convergence divergence) histogram is still printing in the black with an upward sloping trajectory which points to consolidation.

Industrial Production Tumbles

The US Federal Reserve reported that Industrial production fell 5.4%, the largest decline since 1946. The decline was driven by a decline in manufacturing which was down 6.3%. The drop in manufacturing was a function of the 28% decline in auto production as plants shut down.