Gold retests five-year low on dwindling demand, dollar strength
James Chen July 22, 2015 11:54 PM
<p>Gold (daily chart shown below) dropped to retest its five-year low around 1087 on Wednesday after the dramatic plunge of more than 3% that occurred […]</p>
Gold (daily chart shown below) dropped to retest its five-year low around 1087 on Wednesday after the dramatic plunge of more than 3% that occurred during Asian trading on Monday. The rapid slide that began the trading week was the result of sudden, extreme volumes traded in China as investors dumped large quantities of gold within the span of minutes. This prompted further selling as stop-losses were executed, effectively compounding the plunge.
Tuesday saw the beginnings of a rebound to recover some of those losses, but even a partial recovery was not to be, as any early gains made were quickly pared by the end of the day. Wednesday saw further selling as investors continued to dump gold, pushing prices slightly below Monday’s trough before rebounding modestly from those lows.
Prior to this week’s selloff, gold had already broken down below its previous support level around the 1142 price region, which had served as key support in November of last year and March of this year. Last week’s breakdown confirmed a continuation of the longstanding downtrend in gold that has essentially been in place since late 2011.
Having established and re-tested this new five-year low on Monday and Wednesday, the price of gold has closely approached a key support level around 1085 that goes all the way back to March of 2010. This level also stands as the 161.8% Fibonacci extension of gold’s latest rebound from this past March to May.
If this key support is unable to hold, a breakdown could send the price of gold tumbling down to the next major support levels at 1045 and then 1000, which is both an important psychological level as well as the 261.8% Fibonacci extension of the noted rebound earlier this year.
Any significant rebound from current support should be limited to the upside by the noted 1142 prior support level, which may now be considered a major resistance level.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.