Gold collapsed, breaking the uptrend of recent years
Strong US employment data continues to weigh on markets, and the impact could extend for weeks, changing trading strategies for many financial assets. The acceleration in job and wage growth in July and upward revisions to June data brought the start date for the unwinding of the Fed’s support programs closer, with broad implications for markets, d ‘a 7% collapse in gold and other commodity assets to pressure on the stock markets.
Gold lost more than $ 40 on Friday, falling to $ 1,762, closing the week under uptrend support. An avalanche of stop-loss orders in Asian trading brought the spot price down to $ 1,680, close to March lows. The intraday decline exceeded 4%, with a total of two-day losses exceeding 7%.
For the second time this year, a death cross forms on the chart when the 50-day moving average falls below the 200-day moving average. This all adds up to breaking the long term uptrend. More worrying for gold, the fundamentals are also very bearish.
Robust job and wage growth removes the last formal hurdles before the Fed begins to scale back its asset purchase program. These first cuts to the QE program are expected to come as early as September.
The move from asset purchases to $ 120bn per month to zero will stretch over 6-9 months, but in the Fed’s rate futures on Friday the first expectations of a rate hike in January 2022 emerged . That’s a tiny 2.4% chance now, but there’s only a third chance that current rates will stay by the end of next year. This is a much faster rate of normalization than we have seen since the financial crisis.
As a result, nominal US interest rates are rising, pushing back interest on the dollar and putting pressure on gold. It is moving more dynamically than it has since 2008, so we may now be seeing a reversal as we saw in 2013, when the bear market in gold lasted until the end of 2015, clawing back almost all of the gains since the onset of the financial crisis. An implication of this trend on current prices suggests the potential for another 14% drop towards the $ 1,500 area.
However, it may still be too early to open short positions. Gold could get some support from buyers today and even in the coming days. However, to get back to the bullish trend, it would need to break above $ 1800 and cross its 50 and 200 MA to $ 1820 for confirmation. Given the macroeconomic context, this performance seems overly optimistic. The chances of gold continuing to slide are much higher.