Gold and Silver Prices Jump on Interest Rate Spike
A spike higher in interest rates along with soft earnings reports from Walmart and Cisco Systems sent equity investors scurrying for the sidelines as the sell-off in stocks accelerated on Thursday. Minutes before the closing bell, the Dow Jones Industrial Average was 227 point lower at 15,110.71 while the Nasdaq composite index dropped by nearly 1.8%.
While some traders shrugged off the move to the downside due to low late-summer volume, it was more than enough to move money into precious metals. Gold prices jumped $32 today to just over $1365 per ounce following a big push to the upside earlier in the week. Spot silver prices also rocketed higher by nearly $1.30 per ounce to end the day near $23.20. This marked the highest level for silver since April.
Traders will likely view today’s price action as confirmation that the lows from late June were in fact a major market bottom. This could lead to more money flowing into precious metals in the weeks to come, especially on any pullbacks towards areas of technical support.
There are a few noteworthy discussion points from the daily gold chart above. First, notice how today’s move higher took off right from the 50-day moving average (almost to the penny). Next, it is also important to recognize that this breakout cleared the resistance level from the May low that gold couldn’t overcome in July. The next major area of upside resistance doesn’t come into the picture until we reach the $1425 area and that’s a long way from where the market closed today.
Is it time to enter a long position?
In the short-term, the market may attempt to pull back slightly as prices are currently pushing against the upper Bollinger band. The area near $1350 could make for a good entry point with a stop below $1330. That trade would have a downside risk of $20 per ounce with a potential upside profit target of $60. Precious metals haven’t looked attractive from a trading perspective for quite some time. For those who have patiently waited for an opportunity to get back in the market, this may be it.
If you do decide to test the waters, just remember that this market is still very vulnerable to both talk and action by the Federal Reserve. Any mention of additional bond buying to push interest rates lower could put gold and silver prices back under pressure. As always, have a clearly defined exit strategy prior to entering any trade and you will avoid getting into trouble.