Gold futures sold off dramatically this morning, trading to an intraday low of $1263.30. This low matches two other occurrences in which the market traded to a low of about $1260 per ounce. Gold prices drifted to $1262 on October 6th as well as October 27th. The October low that occurred on the sixth was the conclusion of a correction beginning at $1360 per ounce, the highest price gold traded to this year. It was followed by a brief bounce to $1309 before selling pressure returned, taking prices to these lows for the second time in two months.
On a closing basis, today’s drop is even more significant as gold prices are currently at a four-month low. This low occurred in August midway through the $163 rally which took gold prices to this year’s high.
On a technical basis, major chart damage occurred when prices beached the 200-day moving average at $1267.70. However as of 2:30 PM Eastern standard time, gold is trading just above the 200-day moving average by $0.20.
The U.S. dollar is partially responsible for today’s drop, accounting for roughly 31% of the $10 drop in spot gold which is currently fixed at $1265.60. While $3.95 is a direct result of the stronger U.S. dollar, the remaining $6.05 is due to strong selling in the market, according to the Kitco Gold Index (KGX).
Strength in the U.S. economy with U.S. equities trading at or near record highs has maintained a risk-on environment. October’s trade deficit grew by 8.6% to a nine-month high of 48.7 billion. This added to the already strong risk-on market sentiment.
It also seems that speculative capital has been moving into Bitcoin. It is currently trading at $11,755.63, a net gain of 17 ½% in the last week, 54.9% in the last month, and an astounding 1434.4% on the year.
“Sentiment is bearish for gold,” said Chintan Karnani, chief market analyst at Insignia Consultants, in an interview with MarketWatch. “The rise in U.S. trade deficit numbers tells us of the strength of the U.S. economy till the first quarter of next year. A strong U.S. economy will prevent sharp gains for gold.” He also noted that a “continued rise in bitcoins is also preventing [a] gold-price rise.”
This month is widely expected to result in the Federal Reserve implementing one last rate hike, according to the most recent minutes released from the last FOMC meeting. Traders and investors will be able to gain a little more insight as to the current timetable for rate hikes by the Fed in 2018 when the non-farm payroll report is released this Friday.
Although gold has traded to these recent lows on three occasions beginning in October, the fundamentals which have provided critical selling pressure remain intact.
In an interview with Kitco News, Bill Baruch, president of Blueline Futures said that “while he sees some support at $1262 per ounce, the reality is that the market is setting up to push lower in the near term. There is no catalyst to send gold prices higher.” He also thinks that we need to see a cleansing in the market that will set up a buying opportunity for the end of the month.”
The fact of the matter is there is a historical tendency for gold prices to hit bottom somewhere near the end of the calendar year and then rally as it moves into a new year. This tendency has been evident in the market since 2014. If history repeats itself, we could see gold prices bottom at some point over the next month to month and a half before moving back into rally mode.
Wishing you as always, good trading,