Higher Bond Yields and Dollar Strength Trigger Major Gold Selloff

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Gold is trading sharply lower, with gold futures currently down $26.30, making for a 2% decline. Most active June Comex gold is presently fixed at $1,292 per ounce after breaking below critical support at $1,300 earlier today.

This sharp decline occurs based on a combination of significant selling pressure and a stronger dollar. Spot gold is currently fixed at $1,291.70, which is a decline of $21.30 on the day. On closer inspection, a strengthening U.S. dollar accounted for eight dollars of today’s selloff, with traders in sell mode accounting for the remaining decline of $13.30, according to the Kitco Gold Index (KGX).

Intraday Low Occurs at an Exact 0.618% Retracement

One of the more interesting aspects of today’s dramatically lower prices is the intraday low that gold futures traded to at $1,288.20. This corresponds to the 0.618% retracement which occurs at $1,288.30.

The dataset used to create the Fibonacci retracement begins at the lows which gold pricing achieved during mid-December of last year at $1,238.30. The upper-level price in this data set is $1,368.90, which is the absolute highest value that gold achieved this year.

The next technical support level below the 0.618% retracement is a 78% retracement which occurs at $1,267. Based on this technical study, if gold pricing holds and finds support, we could see a bounce to higher pricing with resistance at the former support level of $1,300 per ounce.

If the 0.618% retracement level of $1,288 does not hold, the most likely price target would be the next level of support at $1,267 per ounce.

The key to where gold trades from here is highly tied to current bond yields and dollar strength. The belief that the Federal Reserve will continue its process of quantitative tightening resulting in more than three rate hikes this year has been a significant component contributing to recent declines in gold pricing. This coupled with the robust economic data which has fueled dollar strength has created a duel force placing major pressure on the precious metals complex.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer