Gold got hammered last week. It dropped below $1,250 an ounce for the first time since last November and lost about 3% for the week. Gold bugs got squished.
Part of that is a reflection of the “irrational exuberance” gripping the equities markets. Who needs a safe haven when everything is going so well?
Part is an aversion to a market increasingly perceived as manipulated. Recently Barclay’s Bank became the latest institution to confess to rigging the market to the disadvantage of their customers.
Part of that was technical – the rollover into the August contract on Friday.
And part is due to the fact gold has been in a long-term downtrend since the summer of 2011. All the bounces since then have only served to confirm the longer over-all direction.
This week we think the $1,240 area will be a significant support area. At the beginning of the year in our gold blog we identified $1,242 as an important price point – resistance onthe way up, support after the price moved past it.
That is the support level that started gold on its run up to the March high just under $1,400. And that was the level where last week’s smash-down was halted.
If the $1,240 zone can hold the price up this week we will likely see a bounce to the $1,268 – $1,272 level.
If the $1,240 support fails, we expect more panic selling to show up, and drive the price back toward $1,204, which is the live pivot area we identified in January.
If that breaks, the next support is $1,180, the New Year’s Eve low.
