Gold Bulls Capitulate

New York (June 18)  After the Fed gave a more hawkish perspective on Wednesday, followed by the ECB announcement on Thursday that it would be year-end before they were looking to tighten, forex traders aggressively bought the dollar. There was a delayed reaction until Friday, but metals traders having initially disregarded the 250 bip drop in the euro finally capitulated on gold. Gold’s inability to break above $1,307, the 200-day moving average, also created technical pressure on the gold market. A move of this size in the euro suggests that maybe a light bulb went off in the multi-national corporate trading rooms. US rates are moving up and ECB rates, at best, are on hold until year-end. I suspect that a number of corporates have not as of yet converted their offshore balances for repatriation home after the tax-law changes. I would expect a bounce after Friday’s carnage. Would see a $1,287 level as an initial target, but dollar strength needs to mitigate. The support line around $1,278 must hold to prevent a test as low as $1,250.

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