Gold Loses More Ground

Fundamentals

Gold futures suffered heavy losses yesterday, after speculators lowered their expectations of Fed action. A good portion of yesterday's selling pressure came from funds, suggesting funds may have switched from net long to net short. Wall Street has been attempting to strong-arm the Fed into QE3, but the FOMC has relented -- at least until now. The likelihood of more easing is diminishing with each positive economic report, which brings tomorrow's Non-farm Payrolls report into focus. If US employers can show at least modest job growth, the possibility of further reckless monetary policy decreases. In other Gold news, the Indian jewelers' strike is now at day 19, lowering physical demand in the near-term. Indications from India are that consumer demand is still good, despite external reports to the contrary. This suggests that demand should pick up right where it left off prior to the jewelers' strike. This can be seen as one of the few potentially bright spots for the Gold market presently.

Technical Notes

Turning to the chart, we see the June Gold contract breaking out of a pennant/triangle on the daily chart. This indicates the market could see further downside. The next significant support level can be found near the 1600 level. If the market fails to hold 1600, prices could come down to test the relative low close of 1540.90. The RSI indicator is not yet at oversold levels, suggesting more downside is possible in the near-term.