Gold Snaps Multi-Year Support, Pointing to Major Trend Change

Gold Break Past 3-Year Trend Line Support Points to Major Trend Change

Spot Gold (NY Close): $1555.43 // -37.80 // -2.37%

The outlook for gold prices continues to broadly favor the downside as Eurozone-borne risk aversion boosts the US Dollar – amounting to de-facto downward pressure on the yellow metal – while the slide in ETF holdings points to evaporating investment demand as the Fed’s apparent abandonment of QE removes the need for an alternative-asset inflation hedge. With that in mind, the greenback may find itself under pressure if Italy’s bond auction shows improvement along the lines witnessed with yesterday’s bill sale, sapping safe-haven flows and nudging gold higher over the short term. Needless to say, the reverse is likewise the case.

The technical picture appears very ominous however. Prices broke major long-term support at a rising trend line dating back to late October 2008, pointing to a major bearish reversal (although reading too much into current price action seems unwise given atypically low holiday-induced liquidity conditions across financial markets). From here the bears target the next layer of support at 1486.52. The trend line – now at 1568.46 – has been recast as near-term resistance.