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Gold and Silver Prices Drop After Chinese Central Bank Pauses Gold Purchases

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Gold, silver, and mining stocks all took a big hit on Friday, suffering from what one news headline called a “double whammy.” In overnight trading gold was down 30 something on news that the Chinese central did not buy any gold in May. They had been big buyers for the preceding 18 months going into last month.

Then before the NYSE market open stronger than expected job numbers came out, which pretty much destroyed any argument that the Federal Reserve needs to, much less should, lower interest rates in the next few months, and gold fell more as the trading day went on.

Gold closed Friday above $2300 an ounce, but the GDX gold stock ETF and silver both fell over 6%. Those are steep drops and tells us that the May selling pressure in precious metals and mining stocks now should be seen as a correction and not just a pause like we saw in March.

We now know that the Chinese Central bank, at the moment, sees gold over $2350 as too high of a price for them to buy. We can now basically see that the price zone of $2350-$2450 is now gold resistance. It will one day get taken out, as more buyers come in, and more reasons materialize for people to buy gold. The masses in the United States never bought into gold and silver this year, missing out on the big rally.

What we will now learn in the next couple of weeks is where the next solid price support level is for gold. It may be right here around $2300 or it may be lower at $2200. Interestingly, $2208 marks the 1/3 retracement point of the gold rally, if you take the low of the past twelve months as the starting point. It’s 150 and 200-day moving averages are moving quickly up to the $2200 area.

The Chinese Central bank doesn’t want gold to go into a bear market here. They bought on the way up and masses of Chinese people did too, knowing that their Central Bank was buying. The Chinese Central bank doesn’t want their people to lose their shirt in a bear market no more than the Federal Reserve would want to see NVDA drop before the November Presidential election.

In big bull markets, and I still believe precious metals are in one, the best long-term buy points come when those moving averages get touched, and it typically happens about once a year.

It looks like people will have a chance to buy with a good long-term investing spot in the coming weeks or months in precious metals and mining stocks.

I’ll have more to say about the jobs report and interest rates tomorrow as there is an FOMC meeting on tap this week on Wednesday.

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