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Gold: rejection and reversal at $1,880

Commentaries & Views

We had suggested that the path to $1,880 - $1,885 was set early last week. We showed the coil gold broke out of on Friday morning and suggested that the first move would reverse; that played out, as gold went on to come within 75 cents of $1,880 at spot, while the front month for GC (futures) hit $1,882.5.

Simultaneously, we suggested caution at that $1,880-85 level as gold was met with a confluence of resistance both at the channel's upper trendline (shown again below on the 4-hour timeframe) and at its 50-day moving average. Right now, gold seems heavily oversold, so a retrace back to the bottom trendline would not surprise. Should that bottom trendline act as resistance, however, lower prices should be expected. Gold bulls want the metal to get back over $1,842-45 ASAP.

The below shows the 50-day moving average in gold on the daily time frame (blue). Note how gold has also crashed below its 200-day moving average as well (orange), which is another hurdle for the bulls.

We can see how gold not only quickly reversed at the blue line (50ma) but also completed what is a bearish engulfing candlestick pattern (shown with the blue arrow). Certainly, metals bulls have lost the near-term technical advantage, which has swayed in favor of the bears in short order. There is much ado about a 75bp rather than 50bp interest rate hike surprise shaping up for tomorrow afternoon, which probably exacerbated yesterday's pan-selloff. Will tomorrow's rate announcement lead to yet another reversal?

Again, we caution that traders should expect to continue to be extremely nimble in the current market environment.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.