Gold on the Edge of Correction

Gold prices are down by 2.0% to $2035 per troy ounce since the beginning of the week despite shocking upside by 3.0% to $2141 this Monday. The previous record was set at $2074 per ounce on August 7, 2020.

Some investors suggest that the attack on the U.S. Navy warship in the Middle East was the reason for this spike. Some think that the World Gold Council is right labeling this spike as “short-term technical trading”. This could be interpreted as a huge stop-loss was liquidated. This required some extra buying of gold that eventually pushed prices up to $2141 per ounce. As soon as this stop-loss order was liquidated completely buying of gold stopped leading prices down below $2100 per ounce and further down to $1990-2010 support. So, the incident with the U.S. Navy warship was only an excuse for such spike.

This 6% volatility in gold could have serious implications as prices charted a huge bearish reversal pattern. Gold has to close this week above $2075 to keep prices above the support. The Nonfarm Payrolls report could have a significant impact on prices, while trading before these numbers will be released would be rather muted. ADP released its estimate of Nonfarm Payrolls at 106,000 in November. Consensus suggest higher numbers at 180,000, up from 150,000 in October. If ADP numbers will be close to reality a disappointment could weaken the U.S. Dollar, lower debt yields and push gold prices up. However, this would not help gold to avoid a correction.

Technically, gold prices have entered a period of a downside that will last through mid-January. Prices could go deep down during this period. The target could be designated at $1840 per ounce, which is a price gap of October 9. The fall of prices below $1990-2010 support will signal this scenario is in action.