Faster than a speeding bullet, more powerful than a locomotive...Yes, I am talking about gold! The XAU/USD pair continued its freefall yesterday and as a result we have returned to a level which hasn't been seen since the beginning of 2011. The pair traded as low as 1335 on weak Chinese data, hedge-fund liquidation and technical selling pressure. Disappointing gross domestic product and industrial production data out of China boosted worries about economic growth. In the meantime, CME Group Inc. said it will increase the margin requirements on gold trading by 19% at the close of today’s session. In my previous analysis, I had told that I was expecting prices to hit 1325/20 and 1266 but I have to admit that I didn't imagine a huge collapse like this. The recent price action shows there is no one buying and picking a bottom yet. We are trading below the Ichimoku clouds and the Tenkan-sen line (nine-period moving average, red line) dropped below the Kijun-sen line (twenty six-day moving average, green line) on almost all time frames. Since this move is not just a simple correction, buying gold at this point would simply be a very risky gambling.
However, I will be watching the support zone between 1333 and 1320 levels today. This zone might be a place where the sellers would like to take some profit off the table. If that is the case, plenty of resistance can be found at 1371, 1381 and 1393. If we rally I will be looking for weakness to sell. A close below 1320 would make me think that we will be testing the 1308, 1296 and 1266 support levels next.
