Gold is having one of the best years after long long time. Just to give perspective how good 2016 has been: Gold is up 14% YTD. This is how Gold looks on daily chart as of now - standing at 100 day moving average:
Source of worry: Gold has lost 5.9% in May 2016 – first monthly loss in 2016.
This pullback has pulled the Gold down to Make or Break Point. What you see below is weekly chart.
As you can see in the chart above - Gold once used to trade above 100 week moving average but then it broke down below it. Post breakdown - Gold saw a big fall but in 2016 - Gold made a successful effort to turnaround by moving above 100 week ma. Now, Technically on any decline - the level of 100 week ma should act as support. As of now that level stands at 1190-1200.
The BIG QUESTION: Can Gold sustain above $1190-1200?
Fundamentally speaking: It looks difficult.
What changed in May 2016 - Market expectation on rate hike by Fed. Now, there is 55% chance that rate hike might happen by July and this has triggered a sharp rally in dollar. A sharp rally in dollar is bad news for Gold. If this trend gathers momentum, then Gold might see a pretty sharp decline below $1190. Having said that -Gold Bulls can still hope as long as Gold trades above $1190-1200
The message is pretty simple: The short term party in Gold can come to an abrupt end if Gold declines below $1190. Be prepared for Unwinding of Gold trade
I am not surprised at this turn of events. Please read the May 10 post:
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers