Gold breaks key technical support.
A robust US Employment Report triggers the breach of a key technical support level in gold, sending it down 2.8% d/d. Here, I give my view on developments.
Yesterday, I noted that gold had entered a bear market, falling >20% from its January all-time high. In my note (HERE) I observed that “in the short-term, gold appears skewed to the downside, with a breach of the 200-day MA likely to lead to a deeper correction towards support around USD 4,100/oz.”
This appears to be playing out, with gold breaking below its 200-day MA (USD 4,426/oz) and falling to USD 4,350/oz (-2.8% d/d) as of the time of writing.
Key indicators point to weakness.
My concern about the near-term downside risk to gold centered around weakness in trading activity, lease rates, bullion flow, and investment appetite, notably:
Trading volume on the CME remains anemic despite the CME slashing the margin requirement on gold, with trading volume down 61% in the past fortnight on the buoyant level of the last fortnight of January. Meanwhile, total open interest is at decade-lows.
Gold held in COMEX approved vaults fell 34t since end-April but at 878t it’s still some 346t above the level prevailing prior to the US Presidential Election in November 2024.
The World Gold Council reports gold-backed ETF holdings fell by 16.3t in May, with my indicators suggesting there’s been a further 16-17t liquidated since then.
Weak speculative demand is also evident in the lease rate, which is now slightly negative, and consistent with this, we are seeing gold flowing back into the Bank of England’s vault, with BoE vault holdings rising for a sixth consecutive month, in May, up 55.6t, to 5,419.6t.
The OTC market shows gold option skew favors put options out to six months, but as my data comes from LSEG and is not ‘live’ it’s likely the risk-reversal skew has moved into much deeper discount.
Below, I discuss investment implications.
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