Gold pulling back for FOMC and Options Expiration by Bill Downey

Jan 26 2015

Gold kicked off the week on lower footing, after being unable to hold the $1,300 level last week and not closing above 1295 on Friday. However, the metal saw some support from strengthened gold in euros, following the Greek election on Sunday.

The Syriza party does not want to leave the euro and looks to renegotiate more favorable bailout terms, but this must be watched closely and any fallout will bid gold higher. If gold closes below support at $1,277 -1,284, it could signal consolidation to extend as low as $1,256.20. “A close back above 1305 will neutralize this lower price action.”

We discussed late last week the FOMC meeting that begins on Tuesday thru Wednesday and the Options Expiration for February gold and the fact that gold most often pulls back on this activity. That has developed today and gold is trying to hold last weeks low at 1272 (which is a weekly reversal price point).

Gold Chart

Going to the chart, we can see that gold is attempting to break back inside the main channel that has been set by the November lows and the December highs. We have drawn in mini-channels to ascertain price supports should gold successfully re-enter the main channel. Support is 1272-1277 today and resistance is now pegged at 1287-1295 for today also. A failure to hold 1272 would lead to 1255-1266 as support on Tuesday. That is the weekly trade support. The max drawdown for this week seems to be 1243, a 38% Fibonacci retracement of the rally that began in November. In gold there are 7K call options that expire worthless if gold is at 1250 on Wednesday. There are 14K call options that also expire worthless on a close below 1300 on that day. The key price point to watch today is that 1272-1277 area. A close below 1272 favors 1255-1256 next and puts the short term trend from bullish to neutral.

Cycles
The next short term cycle is underway and is scheduled to end Feb 3rd (plus or minus 72 hours). As long as we’re above 1266-1272 it’s still possible for the market to rally into that time frame at 30% odds. Any close below there favors lower into Feb 3rd and that’s what we also favor as the most likely factor. Just keep in mind there’s a lot going on so nothing is cast in stone. The red arrow shows that inversions occur and when they do prices go higher into the blue cycle (and vice versa). In summary, a pullback is favored. Note that the red 200 day average at 1255 sits right on a support line. A pullback to that area this week should be well supported (1243-1255).

Silver

Silver finds support for the near in the 1750-1775 area and at 1680-1700. Resistance is 1850-1880 and then 20.50. The short term trend is still up, but a cycle pullback with gold is favored.

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