Bears Drive Gold Lower Amid Equities Rally

Posted Wednesday, June 27, 2018 by
Shain Vernier • 2 min read

In the face of a rally in the U.S. indices, August gold has continued to slide lower. For the third consecutive session, this market appears headed for a negative close and an initial test of the 1250.0 handle. Since the early June break from the 1300.0 area, price has been in a freefall.

As my colleague Skerdian talked about in an earlier update, the recent relationship between gold and equities has been peculiar. While stocks have sold off considerably during the last two weeks, gold has done the same. Investors appear to be more interested in the potential of holding debt products and currencies rather than bullion. This sentiment has skewed the traditional “risk-off” gold/equities relationship.

One product worth monitoring during this cycle of FED tightening, is the 10-Year T-Note futures contract on the CME. Prices have been going up since mid-June and are looking to challenge the highs of May. If we continue to see institutional money bid the 10-Year T-Note, then continued bearish pressure on gold is likely.

August Gold Technicals

Albeit on a smaller scale, the daily gold chart resembles that of trending WTI crude — no formidable support/resistance levels are in play. Psychological barriers provide some of the only downside support levels on the radar for August gold futures.

August Gold Futures, Daily Chart
August Gold Futures (GC), Daily Chart

Counting the bearish action of today, eight-out-of-nine sessions have closed in the red. Price has fallen by over $50.00 per troy ounce for this period. At least on the gold futures markets, 1250.0 is the next logical stop.

Overview: The next 48 hours are going to be pivotal for bullion. With a slew of primary U.S. economic reports due out, this market is in position to move dramatically in the coming 24 hours.

Citing the six-month anniversary of the Trump tax cuts as a primary driver, U.S. Treasury Secretary Mnuchin predicted a “big” GDP number for the second quarter of 2018. Analysts are predicting a 2.2% GDP release for tomorrow. In the event that the U.S. economy continues to show signs of expansion, look for a buyback of equities and gold grind lower by Friday’s close.

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