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16 Mar 2020

Gold nosedives to over 1-month lows, around $1460 region

  • Gold failed to capitalize on the Fed’s policy easing-led weekly bullish gap.
  • Some aggressive liquidation kicks in to cover margin calls due in equities.
  • Technical selling below the $1500 mark aggravated the bearish pressure.

Gold tumbled to three-month lows, or fresh YTD lows, around the $1460 region during the mid-European trading session on Monday.

The Fed took an emergency action to stem the panic in global financial markets and slash its key interest rates to near 0%. The US central bank also announced a $700 billion bond purchases program to ensure liquidity.

The non-yielding yellow metal opened with a bullish gap in reaction to the latest development, albeit failed to capitalize rather met with some fresh supply and extended last week's sharp retracement slide from multi-year tops.

The intraday pullback – also marking the sixth consecutive day of steep declines – lacked any obvious catalyst and could be solely attributed to some aggressive liquidation of bullish positions to cover margin calls in equities.

The ongoing slump to the lowest level since early December seemed rather unaffected by the prevailing risk-off environment and some heavy selling around the US dollar, which tends to underpin demand for the dollar-denominated commodity.

Meanwhile, possibilities of some trading stops being triggered on a sustained break below the key $1500 psychological mark further aggravated the intraday selling pressure and turned out to be a key factor behind the latest leg of a sudden drop.

It will now be interesting to see if the metal is able to find any buying interest at lower levels or continues with its bearish trajectory despite oversold conditions on short-term charts and absent relevant market moving economic releases.

Technical levels to watch

 

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