Gold – Strong Selling After Failed Breakout

Despite an apparent flight for safety and sell-off in the dollar on Monday, there was little love for Gold which usually does well in these circumstances.

Gold was trading at a key resistance level around $1,170 where the descending trend line – 22 January highs – intersects a prior level of support and the 61.8 fib level – 18 May highs to 20 July lows.

As we’ve seen elsewhere, key resistance levels were smashed in yesterday’s chaos but this was not the case here.

Why did Gold not rally?

There are a number of factors that can drive Gold movements and while it’s safe haven appeal is one of them, its role as an inflation hedge appears to be more important right now. Probably because we find ourselves in a low inflation environment and yet, the Fed is contemplating a rate hike which could create more deflationary pressures.

Can Gold go higher from here?

Of course it can but the driver of this move is more likely to be changing rate hike expectations that uncertainty and risk aversion, unless of course we see a much greater crisis. But this would more than likely alter Fed plans in the process.

A growing number of people are already suggesting that the volatility in Chinese markets which has now spilled over into Europe and the US could force the Fed to hold off on a hike in September and maybe even December.

What do the charts say?

At the moment they still suggest there is a bearish bias in the markets. The failure at $1,170 on such a turbulent day for the markets is a big rejection. It will be very interesting now to see if this is tested again in the coming weeks.

If we see another run at these levels following a retracement, it may suggest the market is becoming more bullish. Confirmation of this would come from a break of the descending trend line and yesterday’s high.

The 4-hour chart suggests this won’t come off the 38.2% fib level as the selloff has gained momentum on the stochastic and MACD. If we see divergences forming at the 50 and 61.8 fib levels, it may suggest another bullish run at the resistance level will follow.

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