Gold Technicals – Sharply Lower Despite Bernanke’s QE Talk

It seems that yesterday’s QE talk actually did more harm to Gold than good, which is strange considering that USD actually weakened following the release of Bernanke’s transcript at 8.30am EDT. We saw AUD/USD, EUR/USD, and GBP/USD rallying up strongly, while USD/JPY fell considerably during early US trading session for the exact same reason. It is clear then, that USD is weakening, and the reason for weakening is due to Bernanke’s assuring markets that low interest rates will continue, while stimulus is expected to continue for the foreseeable future as Bernanke puts it succinctly, saying that current QE program is not ‘on a preset course’. What Bernanke is saying effectively is thus:” You know the QE timeline that scared all of you to bits back in June? Well guess what, it’s just for show and in reality I have zero intent to cut, not to mention stop QE3.”

Gold prices did rally up initially, but collapsed quickly before midday when price tried to push beyond 11th Jul highs, which incidentally was brought about by Bernanke’s speech following the release of FOMC minutes. The decline was unexpected, and ran against the rest of the USD denominated assets, suggesting that the decline in Gold isn’t really fundamentally driven, but purely on strong bearish sentiment surrounding Gold and Gold alone.

Hourly Chart

With price currently facing resistance around 1,280, and stochastic forming a peak currently, technicals favor a move back towards 1,270 floor given the strong bearish sentiment mentioned above. A part of the reason why Gold remains elevated to begin with could be due to early week reports of Hedge Funds stocking up speculative Gold positions. It remains to be seen whether these funds are still holding onto their positions given yesterday’s scare, or perhaps they were the instigator for the sell-off when it became more and more painfully obvious that 1,300 is not going to be reached anytime soon.

Daily Chart

Price is not just facing short-term resistances, but there are longer-term resistances in play around the same levels. Even if 1,300 is broken, we have overhead resistances between 1,330 – 1,340 and the descending Channel Top to content with. As such, it will not be surprising to see speculative traders getting cold feet about the long term prospect of gold when bulls have failed at the 1st time of asking despite the entry of big speculators. Stochastic readings are on the verge of forming a bearish cycle signal, and should price break the blue rising trendline which has been supporting current recovery rally, we could easily see acceleration downwards towards the purple Channel Bottom.

Fundamentally, there isn’t great reasons for Gold prices to rally despite Ben Bernanke’s stay of hand with regards to tapering moves. Gold prices have been steadily declining since 2012 Sep, the introduction of QE3, suggesting that QE3 is not really having a bullish fundamental impact on Gold. Investors were interested in Gold in past years gone due to fear of inflation brought about by QE, but after almost 5 years, there isn’t any evidence that inflation is getting out of hand, and hence there is very little reason to buy into Gold right now despite QE3 looking more and more likely to remain in 2013.

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