Gold Takes The Plunge

If any market was the talk overnight, it was certainly Gold markets. The pennant pattern finally broke and when it did as predicted in previous articles, it plummeted lower. With an easing of global tensions – especially in the Ukraine – there has been more much risk appetite out there, and risk aversion is certainly not on the lips of any traders and investors as of late.

Certainly the recent gold prices going higher, where in part led by unrest in the Ukraine, especially as Russia looked to contest parts of the Ukraine and annexation of Crimea – long seen as a sore point for Russia’s political elite. With the election of a new Ukrainian president, stability is now seeming assured for the struggling country, as well as its place in the EU in the future. As the current president is Euro leaning, and the majority of voters are as well.

The main driver for gold overnight was the release of US data, which saw massive positive movements in the US dollar. US durable goods showed a positive increase of 0.8%, compared to forecasts of -0.6%. Needless to say the market reaction was optimistic as a result. Consumer confidence also received a boost, which bodes well for the American economy in the lead up to Summer.

Technically speaking, it was ripe for some serious action, a tightening of Bollinger bands pointed to a big play by the markets, coupled with a strong pennant pattern and markets looking to test the lower boundary of the pattern. The stoch had also been in a downward trend for some time, and todays fall only confirmed what we already suspected for the gold markets – along with the various reports by investment banks.

Gold Daily Chart

What we can expect from gold in this case is some sort of minor pullback which almost looks certain after pushing out the Bollinger bands, market participants may indeed try and push it back up slightly in the short term. However, long term is all downhill, and markets would be folly to think otherwise in the current global climate.

I support this by pointing to the current breakout on the charts as well as the stoch slope which I have drawn, which shows that selling pressure and momentum are currently there and well supported for further movements lower. Additionally, GDP and jobless data are due out on Thursday, and we expect this to be relatively positive for US markets.

When target lows that are attainable in the medium term, certainly, the 23.6 fib level looks very attractive as a level of support. The price target of 1242.00 is a fair distance from the current fall, and markets have used this level as support on a number of occasions. Any further falls lower may be a little hard to crack and be rather far off in the current market climate.

Certainly, gold is looking extremely attractive as the bears take hold. While many still believe in gold for fundamental reasons (which can be questionable), you can’t argue with the technical and they are all pointing to the bears taking hold and pushing this lower. The US economy has arguably improved as well and markets are well poised to take advantage of this. The only concern I have over gold falling is volatility in equity markets and the VIX rising, but this may just be a hangover effect from the end of tapering.