On January 3, gold opened at $1,800 and began a dynamic rally that ended on March 9 when gold reached its highest value this year at $2,077. In just over three months, gold has gained approximately $277 in value or 13.33%. On March 15, the Federal Reserve issued its first interest rate hike since 2018 and marked the start of a major correction that continues to this day. In each of the last three FOMC meetings (March, May and June), the Fed has raised rates.
The Fed raised rates in March by 25 basis points. 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 rates another 75 basis points next week at the end of the July FOMC meeting.
These actions led to a sharp decline in the price of gold from $2077 on March 9 to yesterday’s low of $1678. In just under five months, gold has lost just under $400 an ounce, a loss of -19.21%. The low reached yesterday at $1678 is the lowest value this year and the last instance of gold trading at this level was on August 9, 2021, the day of the infamous “flash crash”. In yesterday’s article we focused on the flash crash and compared it to yesterday’s low, suggesting it was a logical place for gold to find technical support.
Upon closer inspection, gold has found support at this price level on several occasions. Besides the August 9 flash crash and yesterday’s low, there are two other instances where this price level turned out to be a technical support level. The chart above is a weekly gold futures bar chart. 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 to June 2020. The rectangle labeled “B” identifies support in March 2021. The rectangle labeled “C” identifies the low level and the August 9 flash crash support level. 2021, and finally the rectangle marked “D” represents yesterday’s low.
As of 5:43 p.m. EDT based on gold futures, the most active contract for August 2022 is currently set at $1725.30 after taking into account today’s price increase of $11.90 or 0.69%. While one day does not confirm that yesterday’s low represents the conclusion of the major price decline that began in March, or that it is even a short-term conclusion of selling pressure. The fact that gold traded below $1700 for the first time this year and quickly moved back above it could signal the possibility that, at least temporarily, the selling pressure has ended.
Correction and apology: Yesterday I erroneously named Theodore Roosevelt as the author of the quote, “a date that will live in infamy.” It was Franklin D. Roosevelt who made this statement. I should know better how to live 10 miles from Pearl Harbor.
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Disclaimer: 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 strictly for informational purposes only. This is not a solicitation to trade commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for loss and/or damage resulting from the use of this publication.