Equities Surge As Gold Dives
The golden child, gold, has been sliding since this week’s beginning. Stocks are surging and investors are catching the shooting star, leaving gold en mass. This is especially true in the U.S. where the S&P 500 hit its historic high Monday.
The index future pointed to a new high for the open. The Dollar’s post-Brexit gains have held steady from improvements. Talks of the Bank of Japan easing increased trading in the U.S. Dollar and Japanese Yen to a high today. The ETF investors are piling into gold still as a lasting economic consequences of the Brexit vote and concerns over the Italian banks and their health.
The slipping prices this week are probably a result of profit taking from speculative investors in the gold markets. The positioning data reported by the CFTC indicates that money managers along with financial speculators were looking at record-breaking long positions for the week of 5 July.
In just the five weeks prior, the bullish bets rose by 85%. What this means is that the profit-taking likelihood is at a high now. It is not just gold that is suffering for the cashing in on gains either. Silver’s net long position is also hitting its own record highs. It had seen 81,000 contracts, in addition to gold reaching its technical resistance. Read on for more information about gold’s technical resistance.
The Technical outlook
It had gone up for five weeks. It has finally come up against strong resistance with gold in the $1358-$1380 range. The weekly chart has a central bearish trend in it that has been consistently in place since 2011. It has reached and continues to sit at Fibonacci levels including the 38.2% retracement from the 2011 historic high and its 161.8% downswing in recent times. This momentum indicator for RSI hit its “overbought” marker of 70 for daily and weekly time. RSI is at a point where it needs to unwind. Yet, it is giving a strong showing at the same time.
Considering this technical resistance that is strongly in place, any type of pull back is almost expected, and definitely, would not pose any types of surprises. It turns out that this might indicate a healthy outcome for the people who are standing behind the bullish argument. What it will do is allow wavering and oscillating buyers to unwind. This is great for the investors who bought high. It meanwhile gives an opportunity for new buyers to get into new levels. If the gold prices consolidate at the newest highs and its RSI unwinds just by nature of time passing, rather than through price action, it may indicate sharp gains could be on the horizon for gold at some point in the future.
The support that needs to hold is the $1300 level, which is where the old meets with the 200-week moving averages.
For the one-hour chart, gold may hit a double top formation of $1375. It’s broken short-term support at $1352/58 and dropped below the 200-hour moving average. That is the first time it has dropped below that point since June 21.
The H&S pattern neckline hit at the $1335/6 region. The drop below this would see gold drop to $1300 next. Bullish traders will usually pull back at this point even though it would seem to be a false breakdown point. The prices have the potential to ease further in the upcoming days and that is something to look for among investors as well. Gold and silver are both on the move, and for bullish investors it will be time to step back.