Gold markets continue to see selling, as we are now well below the $4000 level. This psychologically important number will capture a lot of headlines around the world.
Gold
The gold market has gotten crushed as real yields offer a return. Of course, that is one factor dragging gold down, as you get paid more than inflation to hold government bonds in the United States. This means that it is actually riskier to hold metals at this point according to the markets.
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That being said, breaking below the $4,000 level is a major event. I am now flipping to the bearish side again. Signs of exhaustion after a short-term rally are going to be entries for me. Now that we are at the $3,900 level, it is possible, if you look at longer-term charts, for the market to go searching for $3,500 below.
The question now, of course, is going to be: if we get bounces, what happens?
Ultimately, I have no interest in buying gold, at least not until we get a significant break above the $4,000 level. This is a statement by short sellers that cannot be ignored. Volume is reasonably strong for the session as well. The fact that traders are not willing to hold gold into the weekend probably tells you something as well.
We violated a major support level, and we have been knocking on the door of breaking down below it for some time. If we get bounces, I am looking to fade those rallies at the first signs of exhaustion—in other words, a wick on maybe an hourly chart.
All things being equal, gold looks really anemic. I have no interest in buying, at least not yet. I will have to reassess if we are back above the $4,000 level. The U.S. dollar strengthening could be yet another nail in the coffin here.
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