Last Trading day of the Quarter Prompts Technical Selling in Gold

With the last trading day of September, and the quarter just completed, it seems that technical selling has moved gold pricing dramatically lower. In fact, gold futures opened at $1501.70 in New York this morning and within a few hours broke strongly below its 50-day moving average which is currently fixed at $1500.30.

As of 5:15 PM EDT the December contract is fixed at $1478.30 after factoring in today’s decline of $28.10 (-1.87%). Although there was mild downside pressure directly attributable to dollar strength today, the dollar’s input into today’s strong decline is minimal at best. The dollar index gained .30% in trading, while gold futures lost 1.87%, which means that selling pressure outside of dollar strength accounted for the vast majority of today’s decline.

While it has been quite clear that gold has been in a corrective stage following the dynamic $300 rally, which concluded on September 4^th. When gold prices reached a high of $1565.  The real question has been how deep this correction would go, and where gold pricing would settle before finding support. Over the last few weeks we have been looking at various corrective models. The first model we suggested as a possible outcome of this correction was a simple A, B, C corrective pattern. In this type of correction, you have two waves (A and C) that move in the direction of the correction (in this case to lower pricing), with a counter wave “B” that moves in the opposite direction.

Last week we looked at a corrective pattern simply called a horizontal triangle which is created when a market moving to lower pricing has a series of lower highs, and higher lows, creating a compression triangle that will typically break to the prevalent direction once completed.

Today’s sharp price decline in gold eliminates that corrective pattern (horizontal triangle) in that the break below the 50-day moving average and an almost 2% price decline has indicated that the first corrective pattern we spoke about is probably the best technical pattern that we can identify.

That being said the real question becomes on a technical basis where will gold possibly find support and conclude this current selloff before returning to a bullish demeanor taking prices higher. Based on our technical studies the first low, or “A” wave took gold to the 0.23% Fibonacci retracement at $1497 per ounce. Once that price was breached today it seems most likely that gold could trade as low as the 0.38% Fibonacci retracement which resides at $1454 per ounce before concluding this current selloff and returning back to rally mode.

Wishing you as always, good trading,