Opinion: Bubble, bubble, gold's in trouble Analysis: Our last update on gold warned that the bubble in commodities might be the next target for hedge fund short sellers.
That’s exactly what happened as the precious metal lost more than US$100 within a week, but the speed and violence of the drop exceeded all our expectations.
After the latest interest rate cut from the US Fed, the greenback is currently in turnaround mode, with markets now believing the current round of rate cuts in the US is approaching an end.
Meanwhile, crude oil also faced a drastic sell-off last week, with current prices just a touch above the US$100 mark, as markets finally realised that a slowing US economy will have an impact on demand.
Therefore, gold was further pressured by the weak crude oil prices.
All in all, a long overdue correction on gold finally emerged in the market last week. It could last for quite a while before we see gold back to the US$1000 mark again.
Likely Price Action: In hindsight, the evening star reversal pattern on the daily chart that we mentioned in the last update signalled perfectly the latest plunge on gold.
The resistance zone between the US$990 and US$1000 levels also turned out to be spot on, as gold recovered to as high as US$998 before tanking to lows of US$900s.
Hopefully, some members managed to squeeze a few bucks based on the above analysis.
With the uptrend support line now broken lower, we are once again downgrading our bias from Neutral to Short.
In particular, we are looking to sell Spot Gold at US$946, as we expect the previous uptrend support line will turn into resistance and cap any bounce from here.
