During the Monday session, the Asians witnessed a complete breakdown in the gold markets. While those of us in North America slept, many of the retail stops below the $1130 level had been run into the ground. With this, the gold markets plunged massively, with what would’ve been fairly illiquid markets anyways.
However, you have to keep in mind that while everybody is worried about what’s going to happen over the course of the next couple of weeks, there is an argument to be made for the longer-term viability of gold. This goes a little bit counterintuitive, but every once in a while, it makes sense to be “buying an asset when everybody else is selling.” Warren Buffett has made an absolute fortune doing this exact same thing, and the one nice thing about gold is, of course, that it has an intrinsic value the currencies don’t.
Gold Technical Analysis: Massive support coming up
While we are sellers of gold in the short-term, we believe that the $1000 level will be massively supportive. We have divergence in the MACD as well, which of course can signal a trend change. Because of this, we are paying particular attention to the longer-term charts in the region of the $1,000 handle.
Also, we have to keep in mind that the 50% Fibonacci retracement level offered a bit of support during the session on Monday. Most of you would have missed this because it is on the monthly chart, which most of you don’t pay attention to. The 61.8% Fibonacci retracement level is just below the $1,000 level, so there are a lot of reasons to believe that the buyers will show up in this general vicinity, which we have marked as a yellow rectangle on our charts.
The Federal Reserve is expected to raise interest rates at least once this year, but the question then becomes how quickly will they continue? We suspect that they won’t because the markets are starting to run the Federal Reserve, as they are very beholden to what the reaction will be. The Federal Reserve has one unmitigated talent: causing asset bubbles. We believe this will have money flowing into gold. Also, you have to keep in mind that the US dollar has run very drastically to the upside, and it’s probably only a matter of time before it starts to sell off.
The technicals look good, and the fundamentals may be starting to catch up. With this, we are selling gold at the moment, but also recognize that a long-term buy-and-hold type of signal may be ready to fire off. We will be paying attention to the weekly and monthly charts for that buying opportunity, using low leverage to gradually build up a position.