Gold closed down $6.50 on Monday to close at $1256.90, continuing a short term period of consolidation while remaining above the $1250 level. Some skittishness in global currencies has drawn more interest in gold, the ultimate safe haven asset and counterpoint to paper assets. With the U.S. stock market down heavily on Friday (including the Dow down over 300 points) and both Asian and European stock markets lagging as well, gold stands to benefit from the resulting market jitters and make a run in a flight to safety. The earlier high of the day of $1279.80 was telling, as it was a full $12 over December’s high of $1267.50, an intraday breakout worth noting.
Another interesting development in world financial markets was news out of China that the Chinese financial system experienced a short term liquidity crisis, with Chinese banks oddly and unusually restricting cash transfers for three days and conversions from the yuan into foreign currencies for nine days. This has come on the heels of weak economic data being released by the Chinese last week, and concerns exist that these two back to back headlines of negative Chinese economic activity may be a signal of global economic turmoil ahead. This, of course, can only benefit gold.
The common thread of recent global economic news is a sense of instability and danger ahead, and as one would expect this is bad for paper assets but very good for gold. Although gold closed near the session lows on Monday, it is noteworthy that it reached a nine week high earlier in the day. Momentum is to the upside, and the next technical level to keep an eye on is substantial resistance at $1300. Cracking that level will be the next goal, and a close above the December high of $1267.50 will be a very good step in that direction.
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