James Hyerczyk
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Gold futures finished higher on Wednesday, producing a potentially bullish closing price reversal bottom in the process. A confirmation of the chart pattern on Thursday could trigger the start of a 2 to 3 day counter-trend rally.

Buyers came in early Wednesday when the selling pressure from the previous session dried up as the market approached its March 8 bottom at $1676.20. This is a potential trigger point for an acceleration to the downside so we have to say that the buyers came in to defend this level against such a move.

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Due to the holiday shortened week, and the end of the month and quarter, I have to chalk the rally up to profit-taking and position-squaring. There is no support base so I don’t expect the move to last very long. Additionally, over the short-term, it’s going to take at least five days to form a proper bottom or a “W” shaped bottom that tends to indicate higher prices are coming.

Furthermore, unless traders expect to see a sudden plunge in Treasury yields or a sharp break in the U.S. Dollar, it’s going to be difficult to find a solid catalyst to support a rally over the near-term.

Gold Down 11 Percent for the Quarter

Gold futures posted their biggest quarterly decline in more than four years on Wednesday, as elevated U.S. bond yields and a stronger dollar diminished the safe-have bullion’s appeal. For the quarter the precious metal was down more than 11 percent, its worst quarterly performance since the last quarter of 2016. It also posted its third straight monthly decline.


Interest Rates and Vaccinations

It looks like hindsight to some, but if you’re in the trenches everyday analyzing and trading gold, it’s just a recap of what you saw and what you experienced. So don’t let anyone tell you, that you have 20/20 hindsight. What I’m talking about is the steep break in gold in early November, which set in motion a steep break that continues today.

That day in early November when gold plunged $100, lit the fuse that fueled the steep break and prices never looked back. We saw another vaccine-related plunge in March as U.S. vaccinations continued to outpace the rest of world. That correlation is likely to continue for weeks until investors move on to the next catalyst.

Moving nearly hand in hand with the vaccination rate was the surge in U.S. Treasury yields. Some investors view gold as a hedge against higher inflation that could follow the massive U.S. stimulus measures and the expected surge in the economy, however, the recent spike in U.S. Treasury yields has weighed on the non-yielding commodity.

One day up is not enough to convince me that we’ve hit the bottom. I don’t think we’ll see one until coronavirus cases, vaccinations and Treasury yields level off. I think gold is likely to retest pre-pandemic levels before the end of the year.

For a look at all of today’s economic events, check out our economic calendar.

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