Gold: sub: $1,200 for the long-term?

The recovery in the gold price, after crashing through key $1,200 support during the Asia session, has looked pretty pathetic at best so far today. It managed to climb back to $1,210, but quickly retreated and it is now back below $1,200.

So what is driving this move? The long-term downtrend in gold is mostly fuelled by benign inflationary fears and the prospect of the end of the Fed’s era of super-easing. However, the recent acceleration in the decline of gold may have been on the back of stresses in the Chinese inter-bank lending market. As financial strains have risen in China, gold has looked particularly vulnerable. One reason for the gold/ China link is that investors are liquidating their gold positions to fund losses in their Chinese assets.

The speed and ferocity of this drop is alarming, gold has fallen nearly $250 since June 6th. Thus, even when it looks extremely oversold the pullbacks, particularly in the last 10 trading sessions, have been shallow; after all no one wants to catch a falling knife…

So where could gold go to next? With China’s situation far from resolved, and the authorities in Beijing slow to react, there could be more downside for the gold price. The next support level of note is $1,145 – the 61.8% retracement of the uptrend from March 2008 – September 2011. We believe there could be a wave of selling on any move back to $1,205-10 (the recent high). However, if there is no recovery, not even in the short term, then we could see the sell-off take another leg lower if we fall through today’s low at $1,180. Below $1,145 (61.8% Fib support), $1,055, the 100-month moving average, comes into the picture.

Source: Forex.com

28.06.2013