If you are a pure speculator, this afternoon has delivered some spectacular trading opportunities for gold traders, with patience once again rewarded as the impending weakness which has been building over the last two weeks, has finally exploded, with the GC December futures contract tumbling through the $1200 per ounce region to trade at $1195.40 per ounce at the time of writing. The fall today has been dramatic with the metal currently down almost $20 per ounce on the session, and now looking to move deeper still in the short to medium term.
For gold bugs and gold investors, this is an appalling chart to witness, and unfortunately at present, there is little on the horizon to suggest that the current bearish trend is likely to end any time soon. The continued strength in the US dollar is driving many markets at present, with gold also responding to this pressure declining along with many of the major currencies, and with equity markets recovering from a short term reversal, this too has removed any safe haven demand. This afternoon’s non farm payroll came in better than expected at 248,000 and with the headline rate apparently falling from 6.1% to 5.9%, this is adding some further bullish momentum to risk markets. Even the buying season in India which I have mentioned before, is failing to halt the current downwards momentum.
From a technical perspective it is the last two weeks which have really defined and shaped today’s dramatic move, and in reality, it was not a question of ‘if’ but ‘when’, the market would break lower. To the upside, the deep area of price resistance in the $1230 per ounce area has defined the ceiling, which was tested on several occasions on an intra day basis, with two major tests coupled with high volume. Yesterday’s candle was yet another with high volume and a deep wick to the upper body, with the metal closing back near the open once again. To the downside, it was the floor of support in the $1206 per ounce region, which had held firm until this morning, but once broken, this has now become a significant region of price resistance overhead. The next logical level is now in place at $1187 per ounce, and this is now in sight, so expect to see this breached with a sustained and deeper move towards $ 1174 per ounce.
Sadly, this is not good news for investors, but as always for speculators it’s simply a case of trading with the market sentiment, and not against it, and for gold, that sentiment remains heavily bearish, and likely to remain so for the foreseeable future. As always, it will be volume that signals the change in trend, but with the express train now rolling, any stopping volume and consequent congestion phase is likely to be extended, before we see a longer term reversal in trend.
By Anna Coulling