Gold plunged lower during the trading session on Wednesday again, as we now find ourselves well below the $4,200 level.
At this point, it looks like gold is starting to fall apart and it could very well come undone pretty significantly.
I think a lot of what we're seeing here is the fact that interest rates remain elevated.
Even though they aren't necessarily shooting straight up in the air, it just takes a lot of the gleam out of gold, if you will, all things being equal. I think this is a situation where traders are waiting to see if we break down below the low of March 23rd. Because if we do, that would be a major breach of support. In that environment, I think we will almost certainly take on $4,000 and probably break down from there.
Gold Needed to Pull Back
Gold had been somewhat parabolic previously, so a correction like this is not overly surprising. I do think eventually this ends up being an awesome buying opportunity, but we might be talking closer to the $3,500 level. I'm a little hesitant to short gold, but I certainly wouldn't be a buyer. Short-term rallies, you might be able to sell as there's obviously a lot of overhead pressure and quite frankly, until we get through the situation in the Middle East, it's somewhat hard to imagine that gold is suddenly going to take off.
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If and when we get less concern about energy inflation, then maybe we can have that conversation. But as energy inflation is a problem, that will keep rates higher. A risk-free rate over a non-yielding metal like gold, that's a pretty simple trade for most money managers to take on when rates are this high.
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