Posted on April 12, 2013
Well it looks as if the gold market has spoken. Spot gold is trading down over $62 per ounce at $1502 and change as of this writing. The market has suffered a massive long liquidation day that looks to be primarily driven by chart selling. The U.S. Dollar has traded flat for most of the session, and crude oil did not help gold any as oil sold off heavily as well.
Many are wondering what is driving such aggressive selling? It would seem that a day like today where the dollar is not much of a factor and equities are under some pressure that gold might trade sideways or trade a bit higher. This was not to be.
Gold has been in the headlines a lot in recent weeks as prices have struggled to maintain any upside at all. Now this is not to say that the bullion market will head straight down. In fact, the $1500 level may attract some bargain hunter buying and some shorts may elect to cover some positions here.
Spot gold did in fact trade below the $1500 mark before slightly recovering just back above this level. What has occurred here though is in fact quite important. Many longs have now thrown in the towel. It is quite likely that many of these longs have been long the market for quite some time.
Today’s price action is very likely due to a whole lot of stop orders being triggered. From a contrarian standpoint this could prove to be a buyable low. After all, it seems that many more people are now bearish gold and that perhaps the near term sell off has been overdone.
It is possible however, that not all the bulls have been shook out yet and therefore a tradable low has not been reached. Time will tell. What can be seen is the chart damage inflicted on bullion prices at this point. The market has clearly broken out of its prior trading range from $1550-$1800 and therefore lower prices are now likely.
A likely next price target may be $1438ish where the 200 day EMA comes in on the weekly time frame. The monthly time frame has now clearly flipped into a downtrend. This fact will quite possibly change the dynamics of this market for the foreseeable future.
For those that buy physical bullion to protect wealth and try to achieve some sense of security, there may be some good opportunities to buy bullion at lower price points and therefore dollar cost average one’s holdings. It is also important to keep in mind that many of the very bullish fundamental factors for gold remain in play, and that at some point the yellow metal will likely shine again.
Chart Source: QST