On January 3, gold opened at $1,800 and started a dynamic rally that ended on March 9 when gold hit its highest value of the year at $2,077. In just over three months, gold has gained nearly $277 in value or 13.33%. On March 15, the Federal Reserve made its first rate hike since 2018 and marked the start of a major correction that continues to this day. During each of the last three FOMC meetings (March, May, and June) the Fed raised interest rates.
The Fed raised interest rates in March by 25 basis points. It was followed by a 50 basis point hike in May and a 75 basis point rate hike in June. The Federal Reserve is widely expected to raise interest rates by another 75 basis points next week when the July FOMC meeting concludes.
These actions led to a strong demise for gold prices from $2,077 on March 9 to yesterday’s low of $1,678. In just under five months, gold has lost just under $400 an ounce or a loss of -19.21%. Yesterday’s low of $1678 is the lowest value this year and the last time gold traded at that level was on August 9, 2021, the day of the infamous “quick crash”. In yesterday’s article, we focused on the rapid crash and compared it to yesterday’s decline which suggests that it is a logical place where gold could find technical support.
On deeper inspection, gold has found support at this price point on several occasions. Besides the quick crash on August 9, and yesterday’s low, there are two other cases where this price point proved to be a technical support level. The chart above is a weekly chart of gold futures. It highlights specific times when we can identify $1678 as a support level.
The rectangle labeled “A” identifies support at this level from approximately April through June 2020. The rectangle labeled “B” identifies support through March 2021. The rectangle labeled “C” identifies the low support level for the flash breakdown on August 9, 2021, and finally the rectangle “D” Yesterday’s bottom.
As of 5:43 PM on the basis of EST gold futures, the most active August 2022 contract is currently set at $1,725.30 after factoring in a $11.90 or 0.69% price increase today. While it doesn’t confirm that yesterday’s low marks the conclusion of the massive price drop that started in March, or even a short-term conclusion of selling pressure. The fact that gold traded below $1,700 for the first time this year and quickly came back above it may indicate that the selling pressure may be at least temporarily over.
Correction and Apology: Yesterday I misnamed Theodore Roosevelt as the author of the quote, “A History That Will Live in Shame.” It was Franklin Roosevelt who made this statement. I should know a better life 10 miles from Pearl Harbor.
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