When all else fails, gold becomes the most sought after safe haven, thriving on both geopolitical and economic uncertainty and instability. After all the bleak news of the last month, the first half of this week was almost all good news from Iran to Greece and from China’s GDP growth to the U.S. congressional hearing and Janet Yellen.
The gold price thrives on bad news and the subsequent fears the news generates. This was reflected on Thursday when gold futures settled at their lowest level in almost eight months. The price stood at what one analyst referred to as a “technical tipping point” as a result of so much optimism on a wide variety of global events.
Gold for August delivery (GCQ5, -0.01%) was down 0.35% or $3.50 to settle at $1143.90 per ounce on the COMEX. This meant that gold recorded losses in six consecutive sessions. The result was the lowest settlement based on the most active contracts since 6 November 2014. After peaking at $1228.60 on 18 May, the price has been dropping steadily to be approaching $1140 per ounce.
Tyler Ritchie, co-editor of The 7.00’s Report said gold prices are at a “technical tipping point on the charts.” He added that, “For those looking to establish some long exposure to gold, you are a pretty favorable risk/reward.” He continued his latest report saying “if $1140 is breached for a few hours that will be a very negative technical signal and a reason to sell.”
Speaking to Kitco, Phillip Streible, senior market analyst at RJO Futures said that “outside factors” have played the biggest role in gold's decline. He stated, “The slump in Chinese equities spooked long-term metals holders, and the normal investors that look for gold as an alternative currency to euro have been plowing into other assets like bonds or the USD.” He added the gold market looked weak and is trading far below the 50 day and 200 day moving averages.
The final comment from Streible, “We should see a quick sell off once the key level of support at $1143 is broken and a washout to $1125.” He added that he saw $1150 as the new resistance for the precious metal.
The release of tensions after the Iran deal announcement, followed by the news that the Greek parliament had passed the legislation to comply with EU demands, was the good news on the geopolitical front. At almost the same time, U.S. data revealed a steep decline in the number of jobless claims and Fed Chair Janet Yellen delivered upbeat testimony to the House Financial Services Committee. Data out of China indicates continued growth in the economy which resulted in a mild recovery on Chinese markets.
All this good news, plus the USD strength, was too much for the gold price and something had to give. The possibility of contagion from the falling oil prices should also not be discounted.