Gold closes below critical support level indicating further decline

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Gold has been and continues to trade under pressure. For the fourth week in a row (albeit only Tuesday), gold prices fell, with the weekly chart showing gold traded at a low and high in the four last consecutive weeks. Recent selling pressure began to kick in immediately after the release of the statement from this month’s FOMC meetings, coupled with the press conference with President Jerome Powell. The more hawkish behavior of the Federal Reserve had a cascading effect, pushing up yields on US debt securities, pushing up the US dollar, lowering the pressure on gold, as well as keeping US stocks down.

Today, the selling pressure has picked up as gold futures fell just over 1%. At 5:10 p.m. EDT, based on gold futures, the most active December 2021 contract is down $ 18.10 and is currently pegged at $ 1,733.90. At the same time, the US dollar gained just under 4/10%, with the dollar index currently pegged at 93.75. This is the highest closing value of the dollar index in 2021. The last time the dollar had this strength against the basket of currencies it is associated with was in November 2020, when it hit an intraday high of 94.30.

In previous reports, we talked about a key and critical support level that occurred at around $ 1,738, based on Fibonacci harmonics. A Fibonacci harmonic occurs when two different sets of data have key Fibonacci retracement levels that occur at the same price.

In the case of this technical study, we used a very long-term data set that began in September 2018, when gold was trading at $ 1,167 up to the gold record set in August of last year. at $ 2,088. This has been compared to an extremely short-term data set that begins at lows reached in the August lightning crash that occurred in response to an extremely robust employment report up to the highs seen in early September. when gold was trading at $ 1,836.

The long-term and short-term dataset revealed a key Fibonacci retracement level at $ 1,738. In the long-term data set, this price was a 38.2% Fibonacci retracement from the 2018 lows to the record high in August 2020. At the same time, the very short-term data set revealed that $ 1,738 was a 61.8% Fibonacci retracement. On a closing basis, this harmonic price was withdrawn today with gold futures currently pegged at $ 1,733.90.

Based on these studies, we might see gold trading at a low of $ 1,677, which matches the lows reached in the August flash crash and the double dip that occurred earlier in March. If gold continues to trade lower, as current fundamentals indicate, gold could trade as low as $ 1,677. The next major support level below this price is $ 1,628, the 50% retracement level of the extremely long data set we used above.

Alarmingly, we have the elements of a perfect storm scenario with US debt increasing the strength of the dollar and now the possibility that there is a continued deadlock in Congress as Republicans and Democrats attempt to find a compromise to raise the debt ceiling before the government runs out. of cash that would occur in mid-October if the deadlock in Congress persisted. This scenario has never happened before, so it seems more plausible that if Congress continues to have a bipartisan deal, it will “likely kick the way” by implementing an interim bill to fund government until December.

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Wishing you, as always, good exchanges and good health,

Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. This is not a solicitation to trade in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for any loss and / or damage resulting from the use of this publication.


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