After hitting a weekly low of $1,689 on Sept. 1, the golden bears were only $10 short of breaking the all-important support around $1,680 an ounce.
Last year, this level withstood bear attacks three times, and six weeks ago, it again caused a sharp upward counter-movement. One can only guess how many stops and sell orders are waiting below this level. Therefore, the fifth attack on this support is likely to lead to a break down. In any case, it should be assumed that this technical signal may cause another significant price decline.
However, the backdrop to this weak and understandably very disappointing development for many precious metal fans is a host of hard pressures that cannot be denied at this stage and are unlikely to change any time soon.
First of all, this is a sharp change in the policy of the US Federal Reserve, which, in the context of high inflation with rising interest rates and tightening the money supply, has been dealing a strong blow to financial markets for almost 10 months. At the same time, the yield on 2-year US government bonds rose to the highest level since 2007 - 3.52%, as investors expect further increases in interest rates by the Fed.
Among other things, this led to an even greater strengthening of the US dollar. Even if the US dollar is ultimately backed by nothing but trust imposed and conditioned by decades, it still remains a one-eyed man among the blind compared to all other fiat currencies.
The trend towards the strengthening of the US dollar has continued since the beginning of the great financial crisis of 2008.
For months, a strong US dollar has created liquidity problems around the world because only the US can print dollars. A strong US dollar usually puts pressure on the price of gold, as well as the value of almost all commodities.
In general, the forecast for both the entire financial market and the real economy remains extremely pessimistic. Improvements are not expected. What's more, after a bear market rally in equity markets, they have also fallen sharply in recent weeks and are trading within sight of their June lows.
This difficult market situation can only be overcome with a high degree of risk aversion and a lot of patience. The only correct strategy for investors can be a combination of the following: having a large amount of cash (with a large share in US dollars), as well as holding bonds with a short maturity and short positions in individual and still highly overvalued stocks.
However, if the price of gold does correct further down, then this would be a great buying opportunity. Because sooner or later the US Federal Reserve will be forced to reverse course due to collapsing credit markets and will be forced to print an incredible amount of new fiat money. But we haven't got there yet. This process may well be delayed until the spring of 2023.