Will Gold fall further
30 September 2011
TECHNICALS:
WEEKLY CHART
The market has fallen back to BOTH:
Only if those support - a band of support – is broken should the Gold bulls be at all worried.
DAILY CHART
The double failure at 1917 was a big disappointment for the bulls.
Then the completion of the double Top by a breakdown through 1705 added the impetus for the push down to the support band 1579–1550.
Note that the minimum move of the Double Top hasn’t been reached – but it may not – due to the power of the supports.
FUNDAMENTALS:
After a seemingly unstoppable bull run that has extended over several years, leading many analysts to forecast a high of $2000 - 2500, the market recently has suddenly sold off hard, why?
The main source of support in Gold has for several years been:
The Dollar has been weak for several years - for different reasons at different times. These have ranged from fear of deflation to fear of a US default this summer as the house Republicans and Obama struggled to find common ground over the Federal deficit and how best to cut it.
Additionally the Eurozone has been struggling for over 1½ years with a Sovereign debt crisis. It initially looked like a local problem affecting mainly Greece and Ireland, but as is now common knowledge, it has since spread, infecting Spain, Italy and even France.
The Eurozone’s inability to resolve this problem and the disagreement among Euro zone politicians, mainly German, on how best to tackle it, led to ECB council member Jürgen Stark resigning from the ECB over policy differences.
The consequence was a sharp sell off in the Euro against the Dollar, as markets began to fear the crisis would lead to a sovereign default, major Bank failure and deep global recession/financial crisis.
Although the US has her own problems that still need to be tackled, since recent agreements have only served as a sticking plaster to allow the US debt ceiling to be raised and avoid a damaging US default, markets still have faith in the ability of the US to eventually solve her problems.
Unlike the US the Euro zone is only a monetary union. t doesn’t enjoy a political and fiscal union, and there in lies the problem of the debt crisis.
Currently there is a hope that the Euro zone will increase its rescue fund from 400Bln to either 1 or 2 trillion. The thinking is the fund would then be large enough to allow a partial Greek default and be able to contain the obvious negative market reaction that would follow, by providing Euro zone Banks with funding and buying Euro zone sovereign bonds.
But it is by no means clear that even a fund of this size would be able to contain a threatened domino effect if a Euro zone country did default. So the fear of a global recession remains.
Add to this the slowing US economy, the fear in markets now is one of potential deflation. This time round even China is unlikely to fulfil the role of economic locomotive since she has been trying to cool her economy and avoid inflation and bubble developing at home.
So currently the focus has shifted away from buying gold as a hedge against everything, to seeing it as a poor asset to hold if recession hits and deflation threatens. We judge that analysis too simplistic. If the global economy hits a recession with governments borrowing still sky high, and QE as the only tool available, why would anyone prefer holding any national currency over gold. We think this bear phase in Gold is only a correction.
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CRB Index Fall Reaches Support Area 
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Dual Retracement Support Should Prompt EUR/USD Bounce