Gold Bugs Continue To Get Squashed

by on June 26, 2013 4:46 am BST

Gold continues to fall late Tuesday evening after the U.S. data beats expectations and the reduction of Fed stimulus lowers any possible inflation. Since January, gold has jumped off a cliff and lost nearly $460 in value and currently is awaiting a bottom at 1,250.8 per troy ounce, down -24.3.

Cash bullion prices dropped to a new low since September 14, 2010 and has fallen 25 percent this year alone.

Major financial institutions are even scaling back their forecasts with Morgan Stanley cutting their targets to 1,409 from 1,487; Credit Swiss forecasts gold to bottom to 1,150 in the next year. Goldman Sachs falls in between the two and trims their target to 1,300 from 1,435.

Gold bugs are getting squashed as the US dollar strengthens on the back of reduced quantitative easing  and stronger than expected economic data recently. Moreover, the potential of interest rates increasing is a nail in the coffin to non-yielding assets. After every drop, gold bugs continuously try to level their case and try to “build a base,” but gold keeps dropping.

The weekly gold futures chart looks ugly as gold punches through the 200 EMA. Gold does not trade like many assets, so the highly oversold indicators do not provide much help. In regards to pure supply and demand, gold is currently holding up in a demand area; but the outlook is grim. The next potential support level for gold is 1,146 near Credit Swiss’ outlook if a close below 1,248 happens.

It gets worse. If the variables of controlled inflation and stable economic outlook, I see gold reaching 1,038 a ounce by the end of the year. Commodities and commodity currencies are not in favor at all, and it is likely for this to continue with emerging markets slowing down and the current noise coming out of China. I believe we can “build a base” a lot lower.

Weekly of /GC (Gold Futures)

Weekly of /GC (Gold Futures)