{"id":69353,"date":"2023-10-06T05:07:42","date_gmt":"2023-10-06T09:07:42","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/gold-futures-officially-reach-a-death-cross-signaling-the-potential-for-price-weakness-to-the-end-of-the-year\/"},"modified":"2023-10-06T05:07:45","modified_gmt":"2023-10-06T09:07:45","slug":"gold-futures-officially-reach-a-death-cross-signaling-the-potential-for-price-weakness-to-the-end-of-the-year","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=69353","title":{"rendered":"Gold futures officially reach a \u2018death cross\u2019, signaling the potential for price weakness to the end of the year"},"content":{"rendered":"
Gold prices have fallen to their lowest since March, officially reaching a so-called \u201cdeath cross\u201d on Thursday and signaling the potential for further weakness in prices for the precious metal for the rest of the year. <\/p>\n
Shares of precious metal miners and related exchange-traded funds had already posted significant losses amid a drop in gold prices over the past two consecutive months. <\/p>\n
\n
Interest in the precious metal has weakened on the back of a rise in Treasury yields to their highest levels in 16 years, and overall strength in the U.S. dollar. That comes just five months after gold futures reached their second-highest settlement on record, at $2,055.70 on May 4. <\/p>\n
\u201cInvestors\u2019 ride on the \u2018gold bus\u2019 has been fun and exciting since earlier this year, but a convergence of bad news across the board emerged this week like a concrete wall, rerouting the yellow metal\u2019s prices in retreat fashion,\u201d Adam Koos, president at Libertas Wealth Management Group, told MarketWatch.<\/p>\n
<\/p>\n
<\/p>\n
\n
\n \u201c<\/span>\u201cInvestors\u2019 ride on the \u2018gold bus\u2019 has been fun and exciting since earlier this year, but a convergence of bad news across the board emerged this week like a concrete wall, rerouting the yellow metal\u2019s prices in retreat fashion.\u201d\u201d<\/span>\n <\/p>\n
\n \u2014 Adam Koos, Libertas Wealth Management Group<\/span> \n <\/small><\/p><\/div>\n<\/p><\/div>\n
On Thursday, gold for December delivery \n GC00, \n +0.19%<\/bg-quote><\/p>\n
GCZ23, \n +0.19%<\/bg-quote> \n fell $3, or 0.2%, to settle at $1,831.80 an ounce on Comex. <\/p>\n
Most-active gold futures have fallen to their lowest finish since March 8 \u2014 a significant drop after posting a settlement of $2,055.70 in early May, the second-highest settlement on record, according to Dow Jones Market Data. <\/p>\n
Bad news for gold investments<\/h2>\n
\u201cThe cascade experienced since last week can be explained in multiple ways. The problem is, there\u2019s not much good in between the lines,\u201d said Koos. <\/p>\n
He pointed out that the U.S. dollar continues to surprise as it climbs further, U.S. Federal Reserve Chairman Jerome Powell and the Fed \u201crelentlessly continue hiking rates faster and in greater distance than anything we\u2019ve seen since World War II.\u201d\u00a0<\/p>\n
U.S. jobs data are also coming in \u201cstrong, smothering the fear trade in gold, all while yields climb to atmospheric levels, seemingly with plenty of gas in the tank,\u201d he said. <\/p>\n
The yield on the 30-year Treasury \n BX:TMUBMUSD30Y \n touched a high above 5% on Wednesday, though was last down at 4.8797% in Thursday dealings. The 30-year rate ended Tuesday\u2019s session at its highest since September 2007. The yield on the 10-year Treasury \n BX:TMUBMUSD10Y,<\/span> \n meanwhile, ended Wednesday at 4.735%,after ending Tuesday at the highest since August 2007. <\/p>\n
Strength in the U.S. dollar, meanwhile, has also weighed on gold prices. The ICE U.S. Dollar index \n DXY \n was down 0.3% at 106.43 in Thursday dealings, but trading up 0.2% for the week. <\/p>\n
Read:<\/strong> U.S. dollar is on the cusp of a historic winning streak. But how much longer can the rally last?<\/p>\n
Higher interest rates and a stronger dollar can undercut appetite for silver and gold, which don\u2019t offer a coupon and are priced in U.S. dollars.<\/p>\n
\u201cSo, when you get your T-chart out and start checking \u2018good\u2019 vs. \u2018bad,\u2019 the major forces that affect gold \u2014 interest rates, inflation, and the dollar \u2014 are all headed in the wrong direction, which is clearly being reflected in what has now turned into a seven-month low in gold,\u201d said Koos.<\/p>\n
Death cross<\/h2>\n
Most-active gold futures on Thursday officially reached a \u201cdeath cross\u201d \u2014 a technical term that generally indicates a bearish trend. It happens when an investment\u2019s short-term moving average falls below a longer-term moving average. <\/p>\n
Read:<\/strong> Gold appears headed for a \u2018death cross\u2019 just 5 months after teasing record highs<\/p>\n
On Thursday, the 50-day moving average for most-active gold futures was at $1,936.27, while the 200-day moving average was at $1,936.33, according to Dow Jones Market Data. That\u2019s the first time the most-active gold contract marked a death cross since July 6, 2022. <\/p>\n
<\/p>\n
<\/p>\n<\/p>\n
<\/div>\n<\/figure><\/div>\n
\u201cIt takes a down-trend to actually create a death cross, so such an event typically forecasts a continuation of a decline that is already well in progress,\u201d said Brien Lundin, editor of Gold Newsletter. <\/p>\n
\u201cBecause gold has essentially bounced between $1,700 and $2,050 since its original post-COVID surge, it has posted three previous death crosses,\u201d he told MarketWatch. \u201cIn each instance, the gold price has continued lower for a few months, before beginning a strong rally back to the highs of the range.\u201d<\/p>\n
So this is the fourth such death cross since COVID emerged, Lundin said, and likely portends \u201cprice weakness through the end of the year.\u201d <\/p>\n
But, \u201cif the short-term moving average fails to convincingly cross the longer-term moving average, as we saw happen in early 2022, we could see a strong bounce and rally off of these levels,\u201d he said. On Thursday, the 50-day MA was just pennies an ounce below the 200-day MA. \u00a0<\/p>\n
Losses in prices of gold had already been contributing to declines in gold exchange-traded funds and shares of major gold miners. <\/p>\n
The SPDR Gold Shares ETF \n GLD \n was trading at $168.68, headed for its lowest close since March.<\/p>\n
Shares of gold miners have also declined, with the Philadelphia Gold and Silver Index \n XAU \n down more than 14% year to date. Barrick Gold Corp.\u2019s stock \n GOLD, \n +1.20%<\/bg-quote> \n is among the standouts, closing up slightly at $14.20 on the New York Stock Exchange on Wednesday after nine consecutive session declines. <\/p>\n
Supportive factors<\/h2>\n
Still, Jeff Klearman, portfolio manager at GraniteShares, which runs the GraniteShares Gold Trust \n BAR,<\/span> \n detailed some factors that are supportive of gold prices.<\/p>\n
Current interest rate levels are \u201clikely to hinder economic growth and pressure equity markets lower, leaving open the possibility that the Fed may need to change its position and broadcast more \u2018dovish\u2019 monetary policy comments,\u201d Jeff Klearman, portfolio manager at GraniteShares, which runs the GraniteShares Gold Trust \n BAR,<\/span> \n told MarketWatch. <\/p>\n
Meanwhile, elevated oil-price levels contribute to higher inflation, he said. U.S. oil futures on Wednesday settled at a five-week low, but are still 4.9% higher year to date. <\/p>\n
High oil prices act as a tax, \u201cperhaps reducing consumer spending\u2026and slowing economic activity,\u201d said Klearman. An economic slowdown can boost gold\u2019s investment appeal. <\/p>\n
Also, gold\u2019s drop, including a 5.1% loss in prices for September, may have been overdone. <\/p>\n
Peter Grant, vice president and senior metals strategist at Zaner Metals, told MarketWatch, that the gold market is \u201cquite oversold\u201d at this point so a dive below $1,800 in gold prices \u201cmay prove difficult initially.\u201d <\/p>\n
However, \u201cas long as yields and the dollar are tracking higher, gold will remain under pressure,\u201d said Grant. A drop to \u201cfresh lows for the year would shift focus to the next Fibonacci level at $1,711.67,\u201d he said, referring to a method of technical analysis used to determine support and resistance levels. <\/p>\n<\/p><\/div>\n