Gold gaps lower this morning as U.S. tax progress and higher yields put the boot into Friday’s failed recovery.
Gold traded in a very choppy and impressive 20 dollar range on Friday but finished with a whimper, settling mid-range 1280.00. It did not pass go at the open this morning in Asia, with gold starting trading four dollars lower at 1276.00 before falling to support at 1272.50 before staging a dead cat bounce to 1274.70.
The street is ignoring President Trump’s political woes and concentrating on firming U.S. yields as the U.S. tax reform bill passed its Senate vote. The House and Senate will now meet to horse trade their respective versions and come up with a workable version the President can sign into law. The rapid progress and intent on completing the exercise in the new two weeks while avoiding a government shutdown have had traders scrambling to reassess the Fed’s interest rate trajectory for 2018. With potentially higher yields (always our thesis), precious metals prices have continued to suffer.
The failure last week at 1300.00 and the rapid unwinding of the multi-week gold recovery, has set a negative tone from a technical perspective. Gold has resistance at the 100-day moving average at 1286.50, the scene of its failure on Friday. Behind this, the 1300.00 area looms as formidable now capping gold rallies.
Support appears at 1272.50, the days low today and the two-month trendline support. The 200-day moving average is just behind this at 1267.00 with a daily close below setting up an attack on critical long-term support at 1260.00. A break of this region may well see longer-term gold positioning exit the market en-masse.