After what seems like a nearly vertical fall in the gold price over the last 7 or 8 days, gold is finally getting a bit of a reprieve this evening as it enters Asian trade. The interesting thing about this most recent selloff is that reports of physical offtake have indicated good buying of the metal down here at these levels. This has been swamped by hedge fund liquidation and some fresh short selling as some in this category are moving onto the short side.
As you can see on the chart, gold fell nearly right to the very bottom of this 8 month long trading range before bouncing higher. It is not unexpected to see this sort of thing as those who instituted some fresh short positions a couple of weeks ago have made a very healthy profit and it never hurts being prudent and taking a bit of money off of the table after these kinds of gains.
We also probably have some bargain hunting and some bottom pickers coming in after a fall of this magnitude. Whether this is just what we traders call a "dead cat bounce" (if you drop a dead cat from a high enough altitude, even it will bounce when it hits the ground) before gold drops through the bottom of this range or whether this is indeed marks the end of this round of liquidation is unclear. I would not be rash enough to venture any guesses at this point as traders remain extremely nervous and very fearful of being caught flatfooted on the wrong side of these damned hedge funds.
I would not feel at all comfortable that the selling is finished until gold were to climb back above the $1600 level but barring any further negative developments out of Europe, it looks like it might want to consolidate a bit here. Again, that is unclear and will require a full trading session in New York tomorrow to get a better feel of things.
Regardless of the current technical washout, the interest rate environment continues to be one of low or negative "Real Yields" and is conducive to holding gold. I suspect a fairly large amount of the gold that is entering the system to be sold is coming from European banks selling off liquid assets in an attempt to raise cash in the attempt to help their pathetic balance sheets. After all, what can they sell that has much of any value at this point besides gold?
The Dollar is still having trouble with the 82 level on the USDX but the week is still not over. A weekly close ABOVE this level would be noteworthy.
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