Gold Technicals – Steady above 1,275

Gold prices fell during Asian trading today, but failed to extend last Friday’s low, but instead bounce back up without testing Friday’s low in any meaningful manner. Currently we’re trading back above 1,280 – within the midst of consolidation from 1,275 – 1,290. The earlier decline today can be attributed to risk adverseness which saw Shanghai Composite Index hitting a daily loss of more than 5% at one point. This resulted in USD pushing stronger and drove commodities lower across board. However, the situation was reversed following the emergence of rumors that People’s Republic of China will be having a press conference to address the recent spike in yields. Shanghai Composite Index reversed the more than 5% loss to climb back above 1,950, trading just 3.52 points (0.18%) below yesterday’s close before the end of today’s trade. The same reversal was seen in Gold, but the recovery was smaller in magnitude.

What can we learn from this? Number one is that strong risk aversion is not increasing demand in Gold – Gold is losing its status as a “safe haven” currency (this property has been lost long ago, but this is one of the clearest confirmation that we have in a post QE3 world). Number two is that bears are remaining strong – as seen from the lack luster recovery despite the strong recovery that is not limited to Shanghai Composite. To be sure, Hang Seng Index has recovered almost 600 points from trough to peak post lunch break, and the same could be said of the Singapore STI, which rallied more than 30 (1%) from trough to peak on the same rumors. Even across currencies, we’ve seen AUD/USD recovering the gains lost today, while EUR/USD managed to carve out a fresh new high. Hence we could be safe to assume that the muteness of reaction of Gold is not due to USD’s strength, but rather due to Gold’s inherent bearishness.

Hourly Chart

From a technical basis, price is heavily depressed, and a re-test of Friday’s low is likely if 1,290 remains unbroken. Should 1,290 gets broken, the 1,290 – 1,300 consolidation zone will provide yet another layer of overhead resistance. In order to fully negate current short-term bearishness, a break of 1,300 is essential but preferably price should move back above 1,350 and perhaps trade back to 19th Jun consolidation to gain a better foothold.Stochastic readings is currently forming an interim trough under 50.0, but the signal isn’t strong as Signal line is still pointing lower. Furthermore, this is coming fresh from an interim Stoch Peak that precedes this morning’s sell-off.

Weekly Chart

Weekly chart perspective is bearish, but price will need to break the 2010 Jun highs in order for the next leg of bearish breakout extension to take place. Without the break, there remains the possibility for price to trade sideways without the 2 levels indicated, or perhaps even a recovery to test the descending Channel Bottom once more (which happens to be the confluence with Q4 2010 consolidation)

Without the properties of a “safe haven”, it is difficult to determine the fundamentals for Gold, as it has very little real utility value as compared to other commodities. Demand is simply driven greatly by sentiments and currently it seems as though that the sentiment is bearish. But sentiment is a fickle beast, and we could easily see demand potentially picking up once again if stock market loses the entirety of 2013 gains.

More Links:
US Market Roundup – Bears holding strong, Futures flat during Asian hours
EUR/USD Technicals – Holding just below the 38.2% Fib
USD/JPY – Limited Losses as Yen Fights Back

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