As mentioned in a previous post this month, gold has fallen below TWO key Fibonacci Retracement Levels of the entire bull market that began in 2001 and ended in 2011. Using the low made in 2001 and the high made in 2011, and then the low made in 2008 and that same high made in 2011, we can construct two different sets of Fibonacci lines to see if we can any confluences which will give those regions/levels more significance should they not hold. The first level came in near $1298.60; the next level is at $1282.
These are not meant to be hard numbers but rather REGIONS where we can look for buying support to emerge. Thus far this month, both levels have fallen to the bears. If the bulls cannot recapture at the very least, the $1282 region, they are in serious trouble should this market end the month BELOW both levels.
I have noted a rectangle as Key Support. It begins near $1210 and extends down to the spike bottom near $1180 made earlier this past spring. It sure does look to me like gold is going to test at least the top of this range near $1210. If for any reason the market fails to rebound sharply from this level, the stage will be set for another test of $1180. If that gives way, this market will more than likely move all the way down to the 50% Fibonacci retracement level of the entire bull market move which comes in near $1086.
One could make the technical case that the price action over this year has formed a BEARISH PENNANT that has just failed to hold support. I would certainly hope not since the repercussions of this technical chart pattern would portend a move as low as $800, as inconceivable as that seems right now.
What I can say is that gold would be well below the cost of production were this to occur and last for any length of time. For that matter, even gold below $1100 is below the cost of production for many mines. The key will be, if it were to get there, how long it stays down there. It is one thing to spike into a region and then violently rebound. It is another for the price to languish there.
I have mentioned many times over the last few months that I believe gold miners should be using price strength to HEDGE portions of expected future production as downside price risk is just too high for any responsible mining outfit not to secure protection and at least lock in some guaranteed profitability on some production. It is a pity that more are not doing so as they would have been able to weather this storm in the gold price allowing their stock price to hold much better than many individual outfits are currently faring. I can only say that if gold were to violate that key support level, they had better be hedged. They can always lift some hedges at the time they sell some actual production but being naked and exposed to the vagaries of the market is simply asking for trouble.
As far as overhead resistance goes, in order for the bulls to dodge the proverbial bullet, the very least they need to do is to push price back over $1300 and change the handle. Even more however, would be to best this month's high which is near $1320.
The release of the FOMC minutes this afternoon, contrary to my expectations, did contain segments that seemed to be a surprise to the market. The tenor of those remarks leaned heavily in the direction of hawkishness and that is what gold sharply lower. It even dented the euphoria in the US equity markets as the S&P 500 initially shrugged off the comments, only to then weaken further as the reste of the session wore on.
The big beneficiary of this hawkish tone was the US Dollar, which in conjunction with speculation that the ECB will move to negative interest rates, soared against the Euro which seemed to fall into an abyss.
All in all, there was quite a bit of commotion across many of the major markets including the bonds which also saw more selling pressure. The all-important yield on the Ten Year Treasury note hit a high of 2.795% today.
I would keep a close eye on that as I feel very strongly that if this thing starts grinding back up towards the 3% level once again, we will be treated to a cacophony of noises coming out of various Fed governors, all of them extolling the virtues of continued QE in full force and warning of the fragile nature of the economic "recovery".
Before getting into gold, I have to make a comment about silver. Losing chart support down between $20.25 - $20.00 has inflicted some heavy chart damage. Barring some sort of news that can be construed as favoring inflation, momentum is to the downside with $19.20 - $19.10 as the next target region.
Moving to gold - I wanted to illustrate something to those who are perennially bullish gold. Notice where the greatest volume in gold has been recently - Yes, on DOWNSIDE MOVES. The only exception to this was the day on which Janet Yellen's testimony statement was released in which we learned ( as if we did not already know this ) Ms. Yellen was extremely dovish. That spooked a short covering rally but as with all recent rallies in gold, it was merely viewed as a selling opportunity.
More later ....
Several news sources are reporting that the European Central Bank is considering moving to Negative Interest Rates in yet another attempt to combat sluggish economic growth in the Eurozone.
Keep in mind that this comes on the heels of their surprise interest rate cut two weeks ago which caught the markets completely off guard. That hit the Euro hard back then and once again, it is getting slammed today as a result.
Gold seemed to catch a bit of a bid on this news but the moves higher are running into selling thus far.
One way of looking at this is that DEFLATION fears are becoming so serious to monetary officials that they are effectively nocking their last arrow on the string to fire. If this move fails to generate any lending/economic activity/growth, what then??
Here is a good story to read dealing with the news....keep in mind that this is not a done deal, yet... the idea is probably being floated to gauge market reaction.
http://www.bloomberg.com/news/2013-11-19/nikkei-futures-gain-on-weak-yen-after-u-s-stocks-retreat.html
So much for quiet trading ahead of today's release of the FOMC minutes from their last meeting! Volume had just dried up with the market killing time as the hour of the release drew near when a batch of large sell orders came out of nowhere and caught the market sleeping. The intention was to run the stops sitting down below yesterday's lows - guess what? They got them!
The surge in volume caused a temporary halt in trading. When trading resumed, momentum based selling then entered in large size dropping gold further. It fell through $1258 which was acting as a temporary floor.
Here is another example of how hedge funds can push price by taking advantage of lulls in liquidity. I am sure some in the gold camp will once again credit this "takedown" to the big bullion banks but that is simply not the case. They continue to lift their existing short positions and add to their exposure on the long side of the market. It is hedge funds who continue to reduce long side exposure and add to their growing, and profitable, number of short positions.
We will get to see this as the December contract enters its delivery period soon. I suspect we will see J P Morgan taking delivery of a rather large amount of gold. Either way, we will see.
One bummer is the fact that this move lower through support occurred today, Wednesday, so unfortunately this week's CFTC report ( Commitment of Traders ) will not pick up the positioning of players.
Silver is dangerously flirting with the $20 level. If it loses support there, another 50 cent drop will come rather quickly with potential for further losses down towards $19.
More later today after the release of the FOMC minutes. Let's see what they might say and whether or not it has an impact on the markets or if they have correctly anticipated the contents.
Crude oil is sinking further today having bounced back above $93 yesterday. That seems to be a general pivot region with the market oscillating around this level.
