Gold saw the largest 1 day drop since 29th Feb 2012 as price fell on Fed’s meeting minutes, which showed confusion among the policy maker regarding how and when they would want to stop QE altogether. In the past, buying Gold has been considered a defensive move, as Gold tend to rally when market is uncertain about its direction. However, in recent days especially since 2012, Gold has seen higher correlation towards risk appetite indicators such as S&P 500 and VIX. As such, the minutes revelation was a double whammy for Gold – Reduction of QE purchases will decrease demand for Gold as traders have lesser need to hedge against USD devaluation; Uncertainty in Fed methodology increases uncertainty which has a bearish effect on stocks and risk appetite – pushing price further in the red.
To top its misery, yesterday’s Philly Fed index took an ugly turn, printing a -12.5 figure vs expectations of a 1.0 read. This cemented Gold price to below 1,600, and broke the already descending channel floor. During early Asian trade, price pulled back to the channel floor once more, though verdict is still out whether this constitute a recovery or a confirmation that the previous support is now turning into a resistance.
Stochastic is slightly more optimistic in the regard, suggesting that price may bounce higher as readings are now hitting levels seen in previous troughs. However, as we are in a strong downtrend since Oct 2012, the bullishness of this signal must be discounted.
Hourly Chart agrees with the longer-term bearish outlook, with price just entering the Kumo which is still firmly bearish. Resistance can be found in the form of Senkou Span B (yellow Kumo perimeter), which is also close to the swing high a few hours ago. However, price might still have some bullishness left in it if we see the Chikou Span (Cyan) line cross above the Kijuu-Sen (Red). Stochastic also suggest price still have some more room to go with a temporary trough formed a few hours ago just when Japan market opens.
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