Gold Bars. Image source: TAKASHI HONMA © 123RF.com
This week's trading session began with a massive barrage of selling pressure on the commodity as talks of FED tapering exacerbated gold's current woes. Our latest comprehensive analysis of gold delineates further on the underlying market sentiment.
A gold flash crash was observed today during the Asian trading session, as the commodity's price had at one point sunk more than $100 (5.20 per cent). The price was then able to recover most of the losses, even though bearish pressure continues to be considerable.
Gold was battered as talks of FED tapering the scale of its asset purchases began last Friday after the July employment numbers crushed the initial forecasts. With the labour market recuperating faster than anticipated and inflation growth expected to match FED's projections, there is a solid case to be made in favour of monetary tightening.
Gold 1D Price Chart. Image source: Trendsharks ©, created with TradingView.com
So far, the flash crash is resulting in the creation of a Hammer Candle, as shown on the daily chart above. The rebound emerged after the price had sunken to the previous swing low at around 1680.0.
The price action is currently concentrated within the major Support Area (in green), positioned just below the 61.8 per cent Fibonacci retracement level at 1768.32. The latter represents the last Fibonacci threshold, which is why the immediate behaviour of the price action would be demonstrative of where the market would go next.
If the price manages to get back above 1768.32 within the next several days, this could be signifying that the market has managed to recoup from the initial shock of the flash crash. Conversely, prolonged consolidation below this make-it-or-break-it threshold would likely be demonstrative of sustained selling pressure and further losses.
Notice that the current downtrend commenced following the emergence of a Shooting Star candle (signifying bearish bias) from the 38.2 per cent Fibonacci at 1825.07. Breakdowns below the 50-day MA, the 200-day MA, the 100-day MA, the ascending trend line (in green) and the 61.8 per cent Fibonacci ensued. All of these factors underpin the strong selling pressure that prevails at the present moment.
July's non-farm payrolls prompted talks of FED tapering the underlying QE programs
Last Friday, the Bureau of Labour Statistics (BLS) in the U.S. published the July non-farm payrolls. The employment numbers absolutely crushed the initial forecasts as it was revealed that headline unemployment had contracted to 5.4 per cent vs 5.7 per cent expected.
U.S. MoM Unemployment Rate. Image source: TradingEconomics.com
With the faster-than-expected rate of employment growth, more and more market participants are now starting to weigh in on a possible FED tightening before the initially announced 2023 deadline.
This is causing the dollar to strengthen while the price of the safe-haven gold decreases.
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