Gold weak but holding support - for now

Gold has now gone down and visited the critical support level near $1680 three times in the last three trading days, each time managing to recover as it attracted quality buying and rebounded. Considering the weak action in both the HUI and in silver, and of course strength in the Dollar, this is encouraging but overall the market is acting rather poorly.

Until this market can manage to regain its footing above $1725, it is in a precarious position. I got the distinct impression that many traders did not want to go home short over a long holiday weekend period (many are taking off until Sunday evening) due to concerns over what may great them come Sunday evening/Monday morning of next week.

The Dollar is on course to end this week on a very strong note barring any changes in the fundamental picture in Europe. That will lead to further weakness in commodities in general. Now that the failed German bund action has sent shock waves through the markets in general and chatter continues to grow that France is next on the downgrade list, the US Dollar is seeing strong inflows as money comes out of Europe. One has to wonder if the Asians are dumping Euro-based debt and gravitating towards Treasuries.

At some point in this crisis, gold is going to stop following the general commodity sector lower and will trade as a safe haven but it is going to continue to experience computer selling from hedge funds and index funds which benchmark against the various commodity indices. It should be noted however that gold is holding much better than silver or the CCI in general. This is due to its function as a safe haven. Were it not for that, it would be getting sold down more severely due to the mad rush for cash currently underway.

Note the various support levels and resistance levels I have noted on the chart. The failure at $1800 is very evident now that we have had some time to put in some more trading bars on the chart. Rallies are being held in check by the downsloping dark blue line of the pitchfork. Support has been established below $1680 with some spiking down towards $1665 producing some decent ricochetting back above $1680. Failure to hold these lows established this week should let the market fall down towards the downsloping red line which parallels the upper tine of the pitchfork.