Bears have been salivating at reaching downside sell stops for a while now but had been stymied by strong physical buying of the metal which had kept prices supported. With the US Dollar continuing to strengthen, and with commodities in general seeing strong selling pressure, they finally got their wish in today’s trading session.
Price fell through some initial support near the $1420 level which had held the market for the last few sessions but once that gave way, downside pressure intensified until bears took it down to near $1410. Just below that they hit their jackpot and reached the sell stops. It was those stops going off that knocked price through the psychological floor at $1400. That allowed another $10+ fall in the price of gold where some short covering and bottom hunting surfaced right below $1390.
I have noted the next level of chart support for gold. It is currently just beneath today’s session low of $1389 coming in closer to the $1385 level. If that does not attract sufficient buying, price will fall down into the rectangle I have noted on the chart somewhere in the vicinity of $1375 – $1365.
I want to note here yet again how volume continues to increase during these downdrafts. This is not a bullish pattern. Bears are firmly in control until we see the volume shift along with the price action.
With the mining shares completely collapsing, there is really no other catalyst for bears to aggressively cover their positions right now other than booking a few profits. Like it or not, approve of it or not, the US Dollar is the strongest game in town right now as investors globally see the US as the best place to stash money. It is a pity that the Treasury International Capital Flows data is so dated by the time we get it but I would wager good money that the component breaking out the foreign money inflows into equities is soaring.
Either way, the strong Dollar is keeping gold buying in check. One thing I might note here – that same strong dollar is now beginning to impact US exports of agricultural goods.
It’s funny in a perverse sort of way that the Bank of Japan, which is printing about $74 billion each month in an effort to stave off deflation is seeing that extra supply of Yen drop its currency into an abyss while at the same time, the Federal Reserve is printing an equivalent value of some $85 billion each and every month while its currency soars blissfully into the upper levels of the atmosphere. You tell me how to mentally wrap ones mind around this sort of perverseness. All I know is that Bernanke and Friends have concocted a new elixir and discovered the Holy Grail of Permanent, Pain Free, Prosperity. We really are seeing the very concept of “MONEY” redefined right before our eyes!