Capital Gold Group Report: Gold Gains as European Sovereign Debt Fears Rise

By Jim Wyckoff
27 April 2010, 2:18 p.m.

Comex gold futures closed higher, nearer the session high and hit a fresh three-week high Tuesday as traders sought out gold as a safe-haven purchase and did some bargain-hunting buying at lower price levels seen in earlier trading. The gold market bulls put in an impressive performance by pushing prices higher despite a stronger U.S. dollar index and solidly lower crude oil futures prices. June Comex gold closed up $8.20 an ounce at $1,162.20.

Fears of a European sovereign debt contagion were heightened Tuesday as debt-rating agencies once again lowered their credit ratings on Greece and on Portugal. Most bond markets in Europe felt the pressure of the ratings downgrades issued to Greece and Portugal Tuesday. The Euro currency slumped lower on the news. The debt contagion fears produced safe-haven buying of gold Tuesday as traders moved to hedge further downside European currency risk by buying the precious yellow metal. Gold bulls were especially impressed by Tuesday's price action due to the fact that the shrinking risk appetite did invite buying interest in gold. In recent weeks, some traders and analysts have attributed weakening gold prices on given days to a lessening investor risk appetite due to the Greek debt crisis.

The London P.M. gold fixing was $1,149.50, compared to the previous P.M. fixing of $1,154.50.

The two-day meeting of the U.S. Federal Open Market Committee meeting that began Tuesday morning and ends Wednesday afternoon is garnering less attention Tuesday due to the Greek and Portugal debt downgrades. It is widely expected the Fed will not raise interest rates at this meeting. However, the wording of the Fed statement following the meeting could hold clues to the Fed's actions in the coming weeks or few months.

From an important near-term technical perspective, June gold futures scored a bullish "outside day" up on the daily bar chart Tuesday and hit a fresh three-week high. Gold bulls have the firm near-term technical advantage and gained some more upside momentum Tuesday. Prices are in an 11-week-old uptrend on the daily bar chart. Bulls' next upside technical objective is to produce a close above solid technical resistance at the April high of $1,170.70. Bears' next downside price objective is closing prices below solid technical support at last week's low of $1,124.30. First resistance is seen at Tuesday's high of $1,165.30 and then at $1,170.70. Support is seen at $1,155.00 and then at $1,150.00.

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