Thursday, September 24, 2009

Gold Drops like a Rock to $1000/oz.

Gold failed to get back above previous September highs once again, and is experiencing a large bar down on heightened sell-side volume. The retracement in gold comes in reaction to the collapse of the GBP/USD in addition to a broad-based appreciation of the Dollar. The positive Dollar flows are in reaction to weaker than expected U.S. Existing Home Sales and German Ifo Business Climate data. Additionally, BoE Governor King didn’t wait long to reignite dovish fears, and crude has gotten hammered beneath our important 1st tier uptrend line. The combination of negative events are leading investors away from risk and towards the Dollar, dragging gold down due to its negative correlation with the Greenback. While the Cable and crude have sacrificed their 1st tier uptrend lines, the EUR/USD and the S&P futures are holding strong above their own 1st tiers. However, a full commitment to the downside would likely force a larger pullback in gold. Therefore, the medium-term uptrend is facing its first considerable challenge in quite some time. Hence, investors should keep an eye on gold’s 1st tier uptrend line since it runs through 9/10 lows. A retracement below our 1st tier uptrend line would likely result in a more protracted selloff. Even though gold’s uptrend is still intact, we are initiating a neutral stance until we see how these various interactions with 1st tier uptrend lines pans out. Meanwhile, tomorrow’s wave of U.S. economic data should help determine whether the broad-based downturn accelerates are moderates.

Present Price: $997.95/oz

Resistances: $998.94/oz, $1000.39/oz, $10002.93/oz, $1004.75/oz, $1007.11/oz

Supports: $996.58/oz, $995.13/oz, $993.14/oz, $991.68/oz, $998.78/oz, $986.97/oz

Psychological: $1000/oz

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