Yesterday’s sell-off in gold, which went against everything happening in the correlated markets, continued today pushing the price down to touch the 200 day moving average before bouncing off of it slightly.  In late Asian trading gold was trading in a tight band near $1667 per ounce.  This puts Gold in a difficult position coming into Friday’s session.  Another weak day and a break of last week’s low will likely bring in fresh short-selling momentum and push the price back near the $1640-1650 area.

Yesterday the debt-ceiling postponement vote along with a little bit of Euro weakness caused a safe-haven dollar bid which snuffed out gold’s attempt to push through the important resistance at $1696.  A weekly close above that level will bring in momentum-based buying, a clear buy signal for the first time since early December.  Today it was the ending of the 9 day rally in Silver which helped propel gold down even though equities, oil and natural gas were all higher.  The breakout by Brent Crude and the move back above $1.336 in the Euro points to an increased inflation trade.  But weakness around Southeast Asia’s dollar crosses (and AUD weakness) confirm short term dollar demand.

Oil prices pushing above resistance, however, is not an isolated event and the change in the Gold to Brent ratio today is signalling the move in gold is seriously overdone.   Weakness in the Asian markets, however, have me in a bearish posture for tomorrow.