Gold recovered most of its early Monday morning flash crash losses but still finished the day down 1.90% at $1729.50 an ounce. Gold has traced out some anaemic gains in Asia, rising 0.25% to $1733.50 an ounce as Singapore and Japan investors returned from holiday. However, gold closed well below its $1750.00 an ounce breakout, leaving the technical picture looking grim.
A firmer US Dollar and US yield curve ensued that gold would never make it back to $1750.00 an ounce overnight, as the flash-crash left bullish gold traders traumatised anyway. That said, gold will probably consolidate ahead of the US CPI tomorrow as its Relative Strength Index (RSI) remains in oversold territory. I am anticipating a $1720.00 to $1750.00 an ounce range ahead of that data.
In months past, I often mentioned structural support in the form of the 61.80% Fibonacci retracement of the March 2020 rally, which lies around the $1680.00 to $1685.00 an ounce region, depending on how thick the lines are you draw on your charts. Being over 50 now (I covet Harley Davidsons) and wearing glasses, I chose the “broader” lines. The flash crash yesterday bottomed around this region (according to my charts), emphasising its longer-term importance.
Accordingly, although I expect gold to range between $1720.00 and $1750.00 over the next 36 hours, a daily close below the Fibonacci support at $1680.00 to $1685.00-ish is a powerful signal that gold is set for a deeper correction, initially targeting $1550.00 and then $1500.00 an ounce. It seems that gold inflation-hedging abilities in the modern age are confined to hyper-inflation and not bog-standard “normal” inflation, transitory or otherwise. Gold’s fate hinges on tomorrow night’s US CPI data.
