Gold Threatens the $1700 Level as Equities Sag
The fear trade seems to be returning in full force, but this time it is fear of a true global recession that is driving capital back into the very fickle arms of the U.S. Dollar and, to a lesser extent, U.S. Treasuries. After as successful defence of 79 the USDX has moved back to 80 which has gold and commodities under pressure. As money continues to flow out of equities as well as commodities on the back of what looks to be one of the worst earnings seasons in a long time secondary markets like gold will see selling as people sell winners and rush to cash.
Eventually this time of selling will abate and those who did not commit to the potential breakout at the announcement of QEternity will be scooping up ounces of gold and barrels of oil like manna from heaven. Every bad earnings report and every bad bit of news coming out of Europe only strengthens the future need for more QE to keep the banking system from collapsing. Gold looks very week right now near $1700 but it has moved close to its monthly average range, so the probability of it breaking down much further before the end of the month is unlikely.
Pain that was inflicted by the longs last month is being revisited on them this month in the metals pits. With futures expiration not happening until the last day of the month, Halloween, however, anything is possible. All rallies in gold are being met with intense capping action and eventual liquidation so until that behaviour changes intraday, traders would be wise to sit out the fighting.