It’s Hammer Time

Gold, as well as silver, began to sell off slightly at the start of trading yesterday on Monday morning in Australia. However, by the time trading had opened in Hong Kong and moved into London, the selling became more pronounced as the price declined at a steeper pace.

By 3:00 PM Eastern standard time, gold futures had sold off to the lowest price this year as gold broke and traded below $1,200 per ounce. At the time of writing this article, gold futures basis most active December is currently trading off by $18.30 and priced at $1,200.70.

Spot gold is also trading under dramatic pressure, down $18.10 per ounce and currently fixed at $1,293.10. According to the Kitco Gold Index (KGX), only $0.60 of today’s decline is the result of a slightly stronger U.S. dollar, with the remaining $17.50 directly attributable to sellers bidding down the precious yellow metal.

This dramatic price decline is occurring at a moment in time when today’s equity market sentiment is undoubtedly in a risk-off mode. Also, traders are still concerned about the economic crisis in Turkey. As such, traders continue to flock to a safe-haven asset, however recent dollar strength, coupled with weakness in gold, has confirmed that traders are choosing to utilize the dollar index for that task.

In fact, recent price declines, including today's, are very much in line with Friday’s CFTC’s COT report (Commitment of Traders). Those numbers reflect the week ending August 7.

As reported by Allen Sykora from Kitco News, “Money managers increased their net-short position in gold futures to 66,116 contracts, compared to 42,528 the week before, according to the CFTC’s “disaggregated” report. The bulk of the increase was due to continued fresh selling, as reflected by an 18,857 increase in total shorts. There was also some long liquidation, as gross longs declined by 4,731 contracts.”

Friday’s report also revealed that gold speculators have added more short positions, as well as liquidating existing long positions.

Our technical studies have indicated gold prices would continue to deteriorate with a defined target of $1,200 per ounce. Over the last month and a half, we have consistently targeted that price point as a very achievable target

Gold futures traded to an intraday low of $1,198.60 and has currently popped back above $1,200 to $1,201.40. The real question becomes whether gold prices can find any support at this price point or whether current market sentiment will prevail and drive gold prices even lower.

Inasmuch as a dead cat bounce at $1,200 would not be that far out of the realm of possibilities, as long as the fundamentals which have been driving gold prices lower remain intact, and barring no genuine geopolitical crisis emerges, we could expect to see continued dollar strength as well as weakness in gold pricing.

Wishing you as always, good trading,