Gold lingers just below $1400.00 in afternoon trading, about midway in the day's $1389.23 to $1415.25 range. Since the metal broke below $1400 on May 15th it has traded over $1400 seven times but closed above just twice. The reluctance of traders to maintain position over $1400 for any sustained period of time is even more pronounced when you note that in addition to the seven actual breeches of the level, gold traded to within $2 of $1400 four times. Of the 14 sessions since the break gold has traded above $1398 eleven times yet closed above the level just three times (5/30 $1414.00, 6/2 $1411.35, 6/4 $1399.05).
Market failure at $1420 over the past four sessions indicates that traders view it as a forerunner of the strong resistance at $1450 and a likely place to go short. From September 2010 until early April 2011 gold was restricted to a $1300 to $1450 range, the upper limit which backstops the positions at $1420. Behind those levels are ranged resistance at $1525 and $1575.
Negative opinions on gold are based on substantial fundamental factors. First, the Armageddon hedge is much diminished. Whatever the other virtues of central bank policies the interventions in the financial markets by the Federal Reserve, the ECB, the Bank of Japan, the Bank of England and the Swiss National Bank have much reduced the chance of a global financial meltdown. Two, inflation is falling not rising. In the face of anemic demand and unemployment in the industrial world firms have no ability to raise prices. Three, trading momentum is still lower. Four, industrial demand is likely to weaken before it improves. China and the United States seem to be slowing, Europe remains in recession, and it is hard to see how export driven Japan revives without external demand.
Chief Market Strategist