In the last few days, I suggested the precious metal was looking weak and was approaching some key levels. Yesterday was a particularly torrid day, and a seminal one for gold traders as the metal took out the potential support level at the $1260 per ounce price region. With this price action, gold now looks increasingly vulnerable to further sustained moves to the downside. This current bout of bearishness is accompanied by a variety of reports suggesting gross market manipulation as well as an investigation into allegations of malpractice as part of the London gold fix.
In addition yesterday, gold was subject to its own ‘flash crash’ which saw the metal plummet $10 per ounce in a matter of seconds as a result of a ‘stop logic’ event. In other words, a sustained stop hunting exercise on massive volume. Furthermore, US dollar strength is also adding its own brand of bearishness with a bounce higher following a ‘flash crash’ in the eurodollar. This was all against the back drop of the release of the FOMC minutes, so a turbulent and hectic day for gold traders and others!
Moving forward, and from a technical perspective yesterday’s price action was accompanied by significant volumes, merely confirming the heavy bearish sentiment for gold and with the metal now having breached the tipping point through the support platform at $1260 per ounce the outlook now looks very bleak with the potential for the metal to re-test the lows of late June in the $1180 per ounce region.
Finally, should the US dollar breach its own tipping point to the upside at 81.50, then all we can expect is yet more pain for gold bugs, and with the prospect of inflation now disappearing one of gold’s primary market functions, as a hedge, is also rapidly disappearing. Not the best Xmas present for gold bugs, but the technical picture remains very very weak, and with little on the fundamental front to help, these are gloomy times for both investors and speculators, unless of course you are a gold bear, in which case, happy days are here again.
By Anna Coulling