Gold Prices Plunge But Find Technical Support

Spot gold prices plunged yesterday after a failure to stay above $1,700 per ounce, a move that was assigned high probability in a recent post. Prices found technical support at the 200-day moving average near $1,661 per ounce. The question now is whether panic selling will hit the gold market anytime soon and send it towards the $1,200 per ounce mark, as some gold bears claim.

I basically do not care whether gold will move towards $1,200 or $,2000 since any forecast that falls outside a horizon of a few days is based either on wishful thinking (confirmation bias) or a misunderstanding or what information charts and price series can provide.

GOLD_20121219

It is clear from the chart above that after failing to find support near $1,700 and rally gold prices fell and found support at SMA(200). The next critical support levels are near $1,646 and $1,633.  Gold is still not in oversold territory as measured by RSI(14), which is at 32.  

Obviously, investors cannot hold gold for extended periods of time because previous metals do not pay any interest while risk of a correction is high. Contrary to what some people think, most investors buy gold when rates fall and sell it when they rise. This is true because the tools at this stage via which central banks can contain inflationary pressures are very advanced. Also, inflation in the presence of high unemployment is not possible and in my opinion at this stage some investors may think that they can sell gold to raise cash to buy stocks and if needed buy the precious metal later at a lower price.

Disclosure: no relevant position at the time of this post and no plans to initiate any positions within the next 72 hours.. 

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