These are dark days indeed for gold investors. With the mid term elections now over, and the US dollar resurgence continuing, the short, medium and long term outlook for commodities and gold in particular looks extremely bearish.
Overnight and into early trading this morning the US dollar has continued its positive rally, moving firmly through the 87 region on the dollar index chart, to trade at 87.43 at the time of writing. As I outlined in a post on the dollar yesterday, we could now be witnessing the start of a super cycle for the US dollar, following the extended bearish trend of the last few years and a possible return to triple digits on the DXY in due course.
For commodities and for gold the implications of such a cycle could be dramatic, and it would be no surprise to see gold move well below the psychological $1000 per ounce region, shedding over 50% of its value from the heady days of almost $2000 per ounce. Overnight, the metal has lost a further $20 per ounce as trading continues on the electronic market, currently trading at $1148 per ounce as the London markets get underway.
Yesterday’s weak price action was a precursor to a further move lower, with the attempted rally running into resistance at the $1175 per ounce region on above average volume. This simply reinforced the heavy selling volumes of last week under the wide spread down candle of the 31st October.
The pattern for gold now seems set. The only question is how fast the current trend will develop, and how far it will fall in the longer term. The only glimmer of hope for gold bugs is the forthcoming referendum in Switzerland, and should the SNB be forced to buy gold, then the 1st December could be an interesting and volatile one for speculative gold traders.
For investors, I suspect that even if the bank are forced to increase their holding, this will not be enough to stop the runaway train which is now thundering down the track.