Gold prices fell to 18 months low last Friday, in the same week which Cyprus announced that it would be clearing nearly all 13.9 tonnes of its Central Bank gold reserves in order to fund the €7 billion needed for its own bailout. ECB’s president Mario Draghi has demanded that the profits of all gold sales by Cyprus must be used to cover losses. Astute market watchers will notice that prices of gold did not immediately collapse after the announcement was made on the 10th. That is because the monetary value of gold is only about 400 million Euros, and while that is a large sum, is certainly not enough to cause ripples in the market. Instead, having ECB making more and more onerous “demands” to recipients of their hand outs, market may turn more fearful and bearish, and instead result in increase in demand of gold as a safety currency especially if more Euro-zone Central Banks clear physical gold assets in exchange of EUR currency that is still under threat in order to keep the EUR afloat.
If that last sentence sounded confusing, don’t worry, the market is confused as well. As such, gold prices did not really move that much following the announcement. Instead, reports on Friday suggest that the huge slide that pushed Gold below 1,500 was due to a ~125 ton sell order worth about $6 billion seen from a large investment bank. This suddenly jump of sell orders flooded the market and spooked market into frantic selling, as confused traders scramble to net off positions while they tried to make sense of the situation.
From a technical perspective, Gold has managed to break the Descending Channel, suggesting that prices are currently in an accelerated bearish momentum. Price has also managed to clear the 1,525 swing low back in May 2012, and broken the 1,500 round number. Stochastic readings suggest that current accelerated bearish momentum could continue with readings still heading lower while staying above the Oversold region.
Short-term chart appears to be bearish as well, with Monday’s recovery not able to hit above the consolidation during Midday US Friday trade.Prices did manage to clear the closing hours consolidation, but that is the minimum we should expect of any short-term technical pullback. Prices are currently looking bearish with a bearish Kumo twist with a bearish Kumo breakout. The only thing stopping price from continuing lower would be the 1,477.5 swing low which may provide some interim support, though a break would most likely result in continuation of a bearish breakout below 1,500. Stochastic readings are on the side of bulls, but only so slightly as Stoch/Signal readings are closing into one another, suggesting that an interim peak may be in place for current bearish readings to properly hit the Oversold region in the short term.
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