Posted on July 14, 2014
Gold prices are trading sharply lower this morning as higher stocks and risk appetite along with some profit taking in the metal drive prices lower. As of this post, gold is trading down nearly $30 per ounce and has seemingly blown right through some levels that may have potentially acted as some degree of support. With today’s price action thus far, a test of the psychologically important $1300 level may be in store in the coming days-possibly even during today’s session.
The big sell-off in gold today may also potentially be attributed to large scale long liquidation and sell stop running. According to some, the recent upside in gold was not brought about by big players going in and buying physical gold but rather was driven by smaller speculators betting on higher gold prices. Once these weak longs began to liquidate, sell stops were triggered and likely exacerbated the move lower quite a bit. In addition, crude oil continues to move lower and some contracts are now comfortably back below the $100 per barrel mark. This move lower in oil will likely not do the gold bulls any favors.
There is no key data on tap for today. Tomorrow, however, investors will get the latest data on retail sales as well as import and export prices and Empire State Manufacturing data. Janet Yellen will also be giving the semi-annual monetary policy testimony before the Senate Banking Committee in the afternoon. Ms. Yellen will also give this testimony before the House Financial Services Committee on Wednesday afternoon. Wednesday will also be highlighted by the release of the Fed’s Beige Book and the Housing Market Index. More housing data will follow on Thursday with the latest Housing Starts data. In addition, investors will also see weekly jobless claims data as well as the Philly Fed Survey. Friday will cap off the week data wise with the release of Consumer Sentiment and Leading Indicators.
For now, it is too early to tell if the gold bulls have really capitulated or if this is simply a large corrective pullback. In fact, the $1281 area represents about a 61 percent retracement of the move higher in gold-and this area previously acted as support. A test of this area certainly cannot be ruled out. Now, a break below this level could signal some trouble for gold and therefore significantly lower prices from there- a test of $1240 or so could possibly happen fairly quickly. If the gold bulls can hold this level, or hold the $1300 level and start to recover, we may see gold once again challenging last week’s highs before long. For now, the next few sessions will be very telling..