Is Gold Price Forming A Selling Climax?
New York (July 20) The question all gold traders are asking right now: Has the yellow metal found a bottom?
Gold prices collapsed to a five-year low overnight, driven down by a bevy of factors including rumors of a large fund selling, news that official Chinese holdings are less than expected and also amid a general lack of safe-haven buying as macroeconomic developments surrounding Greece appear calm, and finally renewed strength in the U.S. dollar. The deck appears stacked against gold.
In the news, the People's Bank of China has revealed its gold reserves total at 53.32 million troy ounces, up 57% from the end of 2009, according to report. That level is only about fifty percent of what some analysts had anticipated and has triggered questions about Chinese demand for gold.
Technically, the action on Monday opens the door to a potential "selling climax." For now, however, the buying interest near the day's lows has not been strong enough to push the yellow metal back into positive territory for a bullish reversal.Let's zoom in on a 60-minute picture of recent action. See Figure 1 below.
What is a selling climax? According to traditional technical analysis, a selling climax emerges at the bottom of a down move in a market's action. It unfolds as all the beleaguered "longs" in the market are forced out amid a heavy volume, massive price decline. The lack of selling then opens the door for a dramatic reversal higher. The 60-minute chart does reveal a move off the lows, but gold remains negative on the day. For now, this does not fit the classic "selling climax" pattern.
What does this mean for gold ahead? The market is overextended in the very short term and traded well outside its lower Bollinger Band line (not shown here) on Monday. On the hourly chart, short-term support has formed at $1,103.40, and that is the level that would need to hold firm in order to suggest the gold market is stabilizing and has found a floor in the very short term.
Big picture? The market has broken down below its November 2014 lows. The trend outlook is weak. The $1,103/1,100 area will be an important short-term support zone. If that zone can hold, gold could begin to stabilize.
If, however, the $1,100 ounce level cracks on a closing basis, gold is vulnerable to further downside testing in the near term. The gold market is falling in search of demand. Asian buyers are price conscious and are bargain hunters.
Long term targets: Gold is vulnerable to a push toward the minor monthly support at $1,045.20 per ounce, the February 2010 monthly continuation chart and below there the psychologically significant $1,000 per ounce level could act as a magnet. Markets like big round numbers. At some point, the cost of production will become a factor for gold. Gold is searching for demand. There are buyers waiting in the wings, but they may wait just a bit longer.
Source: KitcoNews
