Gold markets get hammered on Thursday

Alan Penny

11 April 2019

3 min read

Gold markets crater during the day on Thursday, slamming into the $1300 level, an area that of course is psychologically important. Part of this was possibly due to very low liquidity, and some stop running, because although the US dollar gain against some currencies, it wasn’t necessarily overly strong.

Beyond that, there was no geopolitical problem out there to push gold markets around, but we also started to see a lot of negativity in the silver market as well, crashing down to the $15.00 level. Adding even more to the mystery is the fact that bonds were falling, which is typically not a good sign for the US dollar either. In other words, almost all correlations broke down in what was a very illiquid and difficult trading environment.

The pullback, was it real?

As difficult of a question as this is to answer, it’s one that should be asked as we have seen so much in the way of volatility and a nonevent type of environment. With the US dollar being somewhat of a mixed bag, and more mysteriously the bond markets falling, it’s very difficult to understand exactly what happened until you look at the lack of volume. This may have been a simple stop run, as in low liquidity type of markets, large traders will come in and try to take advantage of the set up.

To the downside, there is a lot of support at the $1290 level, it’s very likely that it will be defended. In fact, later in the day we started to see buyers coming back in to trying to support gold, as it broke back above the $1300 level. Will it hold? It’s hard to tell but at this point there’s another $10 of support just below.

You can see on the chart there is a support line there, but underneath there we also have the 200 day EMA which of course is a very important indicator. If we were to break down below there then the gold market will probably collapse and you could say that it was a real breakdown. At that point we will go looking towards $1250 level, possibly even the $1225 level after that.

gold chart


Pay attention to the greenback

While the correlation collapsed during trading on Thursday, the longer-term correlations do return. At this point if we can see the US dollar falling apart and losing a lot of strength against several currencies around the world, that could be the reason for gold to take off to the upside. There could also be the exact opposite so keep in mind that if the greenback strengthens, that could be bad for gold.

Geopolitical concerns

It seems as if there’s always some type of geopolitical concern out there to push the markets around, and quite often people will go into the gold market to take advantage of that. In a sense it becomes a bit of a safety trade, although gold is in exactly the safest place to be, bonds are. Nonetheless, if we get some type of negative event out there with the Brexit, US/China trade, or whole host of other things, gold could get its shine back.

Written By
Alan Penny

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