Gold off lows as key support holds – for now

It is difficult to pinpoint what exactly caused today’s sharp sell-off in gold prices but it has been partly due to the earlier rally in equity markets. On top of this, the dollar extended its gains after yesterday’s publication of the US retail sales number which showed a healthy increase of 1.1% in March. The sell-off has been exacerbated by the fact the metal was unable to hold its own above key $1315 support level which probably triggered a cluster of large stop sell orders, causing a snowball effect. On its way down, gold has broken several other key support levels including the psychological $1300 mark which also ties in with the 200-day moving average. However the metal managed to at least bounce off its lows in the afternoon. It found some support at $1290, a level which corresponds with a 4-month old bullish trend line and also the 78.6% Fibonacci retracement of the recent rally. This $1290 mark is therefore a key level and if the price of gold were to break below here too then we could easily see further sharp losses in the coming days. On the other hand, if gold goes on to relinquish more of its earlier losses then that could be a bullish development, particularly if it can rise back above the 200-day moving average and hold there on a closing basis. Yesterday’s high of $1330/1 is now the level that needs to be cleared in order to induce fresh buying, although given today’s sell-off that could be some time away.