Gold Technicals – Stable For Now Amidst Strong Bearish Momentum

Bearish momentum in Gold continue to roar as bulls simply can’t get a break. Prices was already bearish due to the surprising lack of military conflict between Russia and Ukraine even though Russia has successfully claimed Crimea on Russia’s map. Even a reported confrontation that left one Ukraine serviceman dead failed to spark anything more serious, and it is clear that Ukraine themselves are trying to avoid any military conflict at all cost, erasing all the premium in Gold that has been priced in earlier when market was afraid a war may break out.

Unfortunately, Gold traders have a new problem that they have to content with – rising interest rates. Fed Chairman Janet Yellen provided surprising clarity when asked when the Fed will start raising rates and she mentioned that it would take “around 6 months” after the end of QE program, which is slightly earlier than what market has previously expected. Time will tell whether this was a gaffe or a sly calculated remark, but the implication is the same – inflation risk moving forward will be even lower and not only that, higher interest rates would make holding Treasuries much more attractive as a safe haven alternative rather than holding onto Gold which actually has a negative holding cost, and it is not surprising to see Gold tanked more than 15 dollars an ounce after the announcement.

Hourly Chart

Prices has recovered slightly during Asian hours, but that is not really surprising considering as the broad risk-off sentiment seen in stocks will continue to have a bullish influence on prices no matter how small. Also, prices have came a long way from around 1,360 to 1,325 within the same day, and a temporary pullback is always to be expected. On the balance of things, it is clear that bearish momentum is still in full force as Stochastic readings have flattened and is threatening to start reversing lower. This concurs with what we see in terms of price action where price is unable to break soft resistance of 1,333. As such, even though prices appears to have rebounded off Channel Bottom and should naturally seek Channel Top, it is possible that prices may simply revert lower from here out due to overwhelming bearish pressure or at the best stay flat for the rest of the day until Channel Top is tagged.

Daily Chart

Things are not as bad on the Daily Chart though, as prices have a few levels of support in the form of Channel Bottom, 1,325 and 1,315. Also, Stochastic readings are close to the Oversold region and we should be able to expect some form of bullish reply after such a sharp decline this week. At the very least, it is possible that traders who have shorted Gold earlier may wish to take profit before the end of the week which will provide bullish pressure in the short-run. Also, we need to watch out for institutional speculators that have been buying Gold heavily past couple of months. The decline in prices may spur these speculators to clear their positions (if they haven’t already done so) but there is also equal if not more likelihood that they may want to load up even more Gold at current “bargain prices”.

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