Gold Hammered After CPI, Tests Below $4100

Gold Talking Points:

• Gold hasn’t yet taken out last week’s low but price is close to a re-test.
• Bigger picture, it’s still the $4k level that looms large after the ardent defense from June and July.

Gold bulls had an open door to force a push as we came into today, but their prospects aren’t looking as good after this morning’s CPI print.

Gold had built into an inverse head and shoulders pattern, with a neckline at the familiar zone of 4200-4235. The round number held the high on Monday night and, initially, it was a clean pullback that had stalled at support. But after this morning’s strong CPI report, bulls evacuated quickly, and prices dipped back-below the 4100 level that had helped to produce a pivot a week ago.

At this point, the formation isn’t completely nullified until price trades through the head, or the low from last week at 4066. But it’s difficult to argue this as a bullish case given the open door that buyers had over the past three weeks where they were seemingly disinterested from forcing a rally.

Gold Four-Hour Price Chart

Chart prepared by James Stanley; data derived from Tradingview

Gold Big Picture

At this point it’s all about the $4k level. Like we saw earlier in the year, there was a degree of bullish anticipation as buyers initially wouldn’t allow for a test of the big figure. This is why we had a strong bounce up to $4400 in June; but it was after the FOMC meeting that month, when Warsh took many by surprise in just how hawkish he sounded, that sellers were finally able to push for a test.

But this is where defense came in, and widespread accusations of central bank buying to support the metal in a grinding backdrop that took a little more than a month before bulls were finally able to force a break after the July FOMC meeting.

Gold Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

Gold Shorter-Term Strategy

The challenge at this point is that price has stalled so near the lows, but for those that do want to press the short side of the matter, there’s now a few levels of note overhead that can be looked to for resistance potential. Price is already near the $4100 level and 4104 sits just above that, but perhaps more compelling is the 4135 level which was a swing high from back in July that helped to demarcate resistance before the prior breakout. Above that, it’s the 4164-4170 zone and if that gets traded through by the end of the week, we’re dealing with another situation entirely as a wide underside wick would illustrate failure from sellers to push. But, as such, that can be considered as a ‘r3’ element of resistance, at this point.

Gold Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Market Analyst, Global Macro