A One-Two Combination Knocks Gold Dramatically Lower

Gold traded dramatically lower as a direct result of both selling pressure and a stronger U.S. dollar, which began after the conclusion of the three-day holiday yesterday. As of 2:30 PM Eastern standard time, April gold futures are currently down $23.20 (-1.72%) and fixed at $1,333 per ounce. The price decline began modestly as trading resumed on Monday and accelerated into trading overseas last night, trading to a low of 1,330 before slightly recovering.

One of the key elements in today’s sharply lower pricing is U.S. dollar strength. Currently, the dollar index is up 58 points and fixed at 89.595, which is a net change of over 6/10 of a percent. The dollar index had recently traded to a critical support level which is the 61.8% retracement at 88.58 before strengthening as it bounced off that support level.

We can certainly see the one-two combination of selling and dollar strength when we look at spot gold which is currently fixed at $1,329.50 per ounce. According to the Kitco Gold Index, the net decline of $16.50 contains dollar strength accounting for $7.50 with the remaining nine dollars directly attributable to sellers in the market.

It is now quite obvious that the highs reached last week when gold traded to $1,363 per ounce created a double top, matching the former high at $1,365 on January 25. On both occasions, those highs resulted in major resistance for the precious yellow metal and thereby invited profit-taking each time. This double top also matches up with highs achieved in September of last year when gold pricing reached $1,362, effectively creating a triple top at this price point. At least, for now, it does not seem that the third time is a charm.

Based on our technical studies the next major support level in gold resides at $1,317, which is the 38% retracement of the most recent rally. Below that price point, there is also substantial support at 1,302, which is a 50% retracement.

As long as gold pricing remains above either of those two support levels, our current outlook and forecast remain bullish long-term, with a high probability that for the short term we could see a further decline in pricing.

Yesterday we recommended taking profits from our current long positions which we entered at 1,323 if gold prices traded at or below 1,341.50. Effectively we are now flat with no active positions. We will look to re-enter the market at the conclusion of this selloff with our current targets of entry at the major support levels above.

Wishing you as always, good trading,