Gold Technicals – Awaiting bearish rejection confirmation

After trading between 1,460 – 1,480 for more than 48 consecutive hours, Gold prices suddenly tanked during yesterday’s European early hours. Price dipped close to $40 an ounce without any apparent catalyst (at least not during European hours), but certainly negative numbers from US during NY trading hours did not help bulls one bit, but instead drove prices further down after ADP Employment and ISM Manufacturing PMI numbers both came in worse than expected.

Hourly Chart

These 2 bad news collaborated to push Gold prices below the 1,460 interim support, allowing bears to ride the momentum and reach beyond last Friday’s low. Short-termed support was seen in the form of 25th April consolidation area and price rebounded from there, which was propelled further after a surprisingly dovish Fed statement opened up future possibility of additional QE. Price rushed back higher above 1,460, but was ultimately pushed back below the significant level within the same candle, underlying the overall bearishness Gold is facing. Currently price is staying around last Friday’s low, keeping within a 5 USD range.

Weekly Chart

Weekly Chart shows signs of rejection from Channel bottom. If the week ends off with a Doji or a Shooting Star candlestick, we will be on track to form a Evening Star candlestick pattern that may help to drive bearish extension from the breakout seen 3 weeks ago. Stochastic readings are less bearish though, with readings pointing higher and hinting of a bull cycle starting. However, readings may need to exceed recent peaks around 30.0 for confirmation before a bull cycle can be safely assumed to be in play as this would most likely coincide with a price break within the descending channel which will open up Channel Top as a viable bullish target.

Fundamentally, it is clear that increase of demand for physical gold has failed fend of the overall bearish sentiment of Gold. ETF Gold holdings have reached the lowest since Sep 2009 – back when the extra-ordinary gold rally started. Gold was bought heavily during the period because traders and investors were fearful of Fed’s QE inflationary impact. Fast forward 4 years later, it is clear that inflation risks remain low, in fact there are some quiet quarters whispering about deflationary risks. Couple this with the fact that US Stocks have outperformed Gold hands down last year, it is easy to understand why traders are no longer interested in Gold but rather clearing their ETF holdings -while they are still deep in the black- and switch to riskier assets. But do not expect Gold to simply collapse from here. Central banks will still be interested to purchase Gold for diversification purposes, and we could see more purchases as Gold prices fall which will help to keep prices afloat for the time being.

More Links:
EUR/JPY – Market Expect ECB Rate Cut, Breakout Potential
AUD/USD – Slow Down Seen In Chinese Manufacturing Sector
WTI Crude – All time high inventory levels pushing price down

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