The Largest Gold Drop in 3 Years


Did you see that drop in Gold? It was the largest single-day fall in almost 3 years!

The fault for it was appointed to the Richmond Fed President Jeffrey Lacker’s nudging of the central bank to hike interest rates again, even if the current data doesn’t approve of the move on the surface.

“While inflation pressures may seem a distant and theoretical concern right now, prudent preemptive action can help us avoid the hard-to-predict emergence of a situation that requires more drastic action after the fact.”

Lacker’s argument revolves around the fact that in early 1994, former Fed Chairman Alan Greenspan hiked interest rates even though core inflation was only running at a 2.2% annual rate and had been drifting lower. This preemptive move saw inflation capped and was argued as the reason for price stability that the economy has experienced since.

After sitting at major resistance into Jackson Hole, on the blog and @VantageFX Twitter account, we have been talking about playing for a breakout higher.

XAU/USD weekly

XAU/USD weekly

But with the major weekly resistance level holding…

XAU/USD daily

XAU/USD daily

And with the counter-trend, daily trend line giving way, the technicals have overtaken as the overriding reason why price was hammered in the way it was.

Now we’ve compared the US Dollar and Gold before and know that our SmartTrader Tools package shows the inverse correlation between the two markets.

If Gold is getting smashed, then the USD is most likely going to bounce, right?

USDX daily

USDX daily

As you can see on the USDX daily chart, higher time frame support held and price has bounced up nicely. Exactly the same as Gold, but inverted. Beautifully illustrating how tied together global markets are even across the commodities/currencies asset class divide.

But… Yes, there’s always a but! As we know, comments from a regional Fed Presidents come and go within the weekly news cycle almost as often as we have hot dinners.

There is always trading opportunity in these moves and cycles. Just beware.

This Wednesday

CNY Bank Holiday

AUD Retail Sales m/m

GBP Services PMI

USD ADP Non-Farm Employment Change

CAD Trade Balance

USD ISM Non-Manufacturing PMI

USD Crude Oil Inventories

This is a guest post originally appeared on Vantage FX. Reposted with permission.

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