U.S. Indices Open In The Red-Key Levels For Gold

It has been a negative open to the U.S. cash markets, with the DJIA down 200 points and the S&P 500 off nine. Bulls appear to be catching their breath after a week that has been defined by extraordinary volatility. Gold is reacting to the weak New York open, retracing from intrasession lows.

As mentioned earlier this week, the recent disconnect between gold and U.S. equities has shifted to the conventional inverse relationship. The result has been bullion rotating between two intermediate-term Fibonacci levels.

Gold Technicals

In a Wednesday update, we looked at the daily chart and discussed the possibility of bears running price south considerably. This scenario has developed, with another Fibonacci retracement level set up as fresh downside support.

After a test of the 38% retracement level (1321.7), price fell off abruptly in the latter portion of the Wednesday session. Since then, April gold futures have tested the lower Bollinger Band (1310.7) and the proximity of the macro 50% retracement.

Here are the two important levels to watch until Friday’s close:

• Resistance(1): Macro 38% Retracement, 1321.7
• Support(1): Macro 50% Retracement, 1306.6

Bottom Line: It is important to respect the current relationship between the U.S. indices and gold. Finally, investors are beginning to hedge their equities bets with bullion. If the U.S. indices show considerable weakness today, look for a rally.

From a trading perspective, a buy from just above macro support at 1307.1 is a good way to play a non-committal market. With an initial stop at 1304.9, this trade is worth 22 ticks using a 1:1 R/R ratio.