Gold Flash Crash retests its old all-time high

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Since my last column two weeks ago, gold for immediate delivery has peaked at $ 2,089 per troy ounce with silver peaking at just below $ 30.00. Last Friday, the safe haven metal hit a daily RSI above 90, then closed the week with a bearish exterior reversal, warning that a further drop this week was likely. This suggests that building gold positions at levels starting this week would have been far too risky. Starting overseas before the Comex session started on Tuesday, the price of gold plunged into the next overseas trading session and hit $ 1,862 in a flash crash stop, before leveling off. to close above its former historic high of $ 1,923 at the close of Wednesday’s Comex.

The collapse in precious metals this week was precipitated by a stabilization of the US dollar. As Democrats and Republicans still debated a second coronavirus package after reaching a deadlock and missing the deadline at the end of last week, the sharp rise in US Treasury yields was the main catalyst of the decline.

The stalemate in the US stimulus continued this week. President Donald Trump accused Democrats of not wanting to negotiate on Wednesday, while Democrats and Republicans blamed each other for the five-day break in talks. Democrats backed a $ 3.5 trillion package, with Republicans considering a roughly $ 1 trillion package, exposing the gap in American party politics across the aisle.

With the US dollar rebounding, this was all the more reason for some profit taking to occur in the gold complex. Although the Federal Reserve previously mentioned the possibility of instituting yield curve control, yields on Treasuries may continue to rise gradually and put more pressure on the price of gold until they have to do it.

Considering that gold had traded 15 consecutive sessions in technically extreme overbought territory, Tuesday’s violent correction, which saw gold give back over $ 200 from its peak, shouldn’t have been too surprising. . While a sharp decline in the safe haven metal on a scale not seen since 2013 on a daily basis seemed perilous for price seekers, this stop should be seen as a healthy correction from a longer term perspective.

Once the all-time high above $ 1900 was wiped out last month, the price of gold has risen very quickly without a real drop in prices. It is important to consider that larger upward price movements, which have been too high above closely watched moving averages, tend to see larger downward corrections to test these support lines once they are over. ‘they finally arrive.

In addition, price corrections in the uptrends are needed to continue to healthy continuation of the current uptrends in gold and silver. It is also important to consider that this large downward price correction did not violate or reverse the upward price trends on the charts. In fact, this sharp correction successfully retested the old historic high for gold in foreign trade, and then closed the next Comex session safely above the $ 1920 region.

The US deficit reached $ 2.81 trillion for the first ten months of the year, the Treasury Department reported this week. Federal government spending reached $ 63 billion in July alone, which was a small sum compared to the amount paid during the worst of the coronavirus pandemic.

Over the past few days, this news has caused the abrupt sell-off to slow down and start to consolidate on some bottom buying. Along with rising inflation expectations amid massive monetary and fiscal stimulus that continue to support gold in the medium to long term, December Gold managed to close its moving average up to 18 days over the past three days. consecutive sessions of the Comex.

After falling along with the price of gold, silver began to lead gold higher during this consolidation, closing well above its 18-day moving average yesterday. Fortunately, we will be able to see the changes in the Gold and Silver (CoT) Traders Commitment Report this week, as this massive correction took place on the very last day of the reference period that will appear in the data. published later today.

Technically, we could see the $ 1,800 region of gold futures tested before resuming its rise, as this level was long term resistance before it was closed above on a quarterly basis for the first time. in June. Although gold broke above $ 1,920 in a parabolic blow in 2011, the safe haven metal was unable to close above $ 1,800 on a monthly basis until this year.

Meanwhile, the GDX and GDXJ were telegraphing this move lower, and both minor ETFs peaked the week before Tuesday’s flash crash. During this healthy consolidation of recent gains, both have lost the support of their respective 18-day moving averages, which may act as resistance with their newly created bearish trendlines from last week’s high. Look for support to their respective 50-day moving averages if December Gold decides to test ExCom’s old all-time high next week.

However, most juniors haven’t corrected much during this recent weakness in the mining complex, and the high-risk silver juniors continue to show relative strength. Silver miner ETFs (SIL and SILJ) both returned to their respective 18-day moving averages as silver started to outperform gold again.

I recommend focusing on individual businesses to time your buying and selling, rather than focusing on the moment. sector correction can low. We have now entered a buy and hold bull market in mining for the first time in almost a decade, and holding base positions during corrections is highly recommended.

The golden bull will do everything in its power to shake off as many riders as possible. Cutting profits on too long moves along the way, while maintaining basic positions, will help investors stay fully invested during sharp corrections.

My goal over the past few years has been to carefully build a concentrated portfolio of outstanding junior resource stocks against the backdrop of an investment horizon at least as long as a cycle, which I think has just started. . If you need help choosing the best quality juniors to invest in, please stop by my website and check out the subscription service at https://juniorminerjunky.com/subscribe.

Warning: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. This is not a solicitation to effect an exchange of commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for any loss and / or damage resulting from the use of this publication.

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