Gold Continuing Lower Following Bearish Confirmation

Gold traded lower today despite an earlier rally brought about by the weakening of the USD across the board. This shouldn’t come as a surprise as the US-Russian agreement on Syria was expected to drive Gold prices lower just as Crude Oil was pressed lower earlier this morning. If anything, the less than impressive rally this morning for Gold at least makes it less bearish than Crude Oil, and gives a ray of hope for bulls still thinking that we may see yet another push towards 1,400 eventually. 

However, this hope appears to have vanished when prices dipped, eventually trading below last Friday’s US close during early European hours. The decline does not appear to be fundamentally driven as there wasn’t any major news that could have driven prices lower. The only significant scheduled news back then was the ECB's (Draghi’s) speech, but even that should have been a mild positive for prices as the ECB President affirmed that interest rates will remain low in the near future.
It seems that the current decline was brought about by technical bears who were accumulating throughout the hours when bulls failed to push beyond the 1,330+ ceiling and the camel's back eventually broke, sending us close to 1,300 currently.



By trading below last Friday’s close, bears open up a Channel Top as a possible bearish target. As the current Channel Top level is below Friday’s low, it is possible that further bearish acceleration may happen, especially since this would mean that the key 1,300 round figure will be broken as well. Stochastic readings are below 50.0, suggesting that a short-term bullish pullback may be possible should we trade close to 1,300, but as long as price does not break the 1,320 soft ceiling of last Friday, the current bear trend will not be invalidated and we could yet see further bearish movement towards 1,200 eventually.


The Weekly Chart shows a slight bearish extension following last week’s confirmation of the rejection from the Channel Bottom. Stochastic readings affirm the bearishness, suggesting that we could see further bearish movement deep into the 1,200 region with the possibility of even breaking the 1,200 barrier as the Channel Top is just around the corner, allowing bears to react in the same way short-term bearish momentum would with regard to 1,300.

Fundamentally, there are signs that institutional traders/investors are no longer as bullish as before. The latest COT data shows a decline of almost 10,000 contracts in Net Long Non-Commerical Positions. If we see further erosion of long positions from this past Friday’s data, we could see even quicker acceleration next week as this would act as a confirmation that institutions are indeed selling from the sub-1,400 move that led us here today. The only saving grace for Gold would be the FOMC event on Wednesday. If the FOMC surprises markets with a non-action (e.g. no tapering announcement), we could potentially see Gold being bid in the short-term.

Long-term, it is unlikely that a temporary stay by the Fed would allow Gold prices to climb higher, especially since Gold prices went lower after the QE3 announcement – suggesting that the bullish impact of QE on Gold is weak, if not non-existent.