Gold Extends 26% Correction as Dollar Strength and ETF Outflows Weigh.

Both the latest charts are weak technically, as the price trades below previous support levels, and the rebounds are losing momentum. Both analysts, Ian Cooper and Ole Hansen, continued to see selling pressure, but with different reasons for the giveaway.

Gold Breaks Through Major Support

The chart by Ian Cooper notes that the recent gold price action has been lower highs and that the bottom of the zone is now a support level that is being broken.

Price had previously found the horizontal support zone a few times, but the recent drop gave a good break. Gold proceeded into the lower portion of the chart, where buyers are still not establishing a solid reversal.

The daily chart is bearish with the price action below the previous support level. The first indication that the breakdown is weakening will be to see a recovery back above $4,000.

There is increasing resistance around the bottom of the descending trendline, which has been a ceiling for rallies since the previous high. Without price reclamation, there is no recovery attempt until that region is reclaimed from the price.

Traders are closely monitoring the lower support area, as Cooper anticipates profits when gold hits $3,900. He further highlighted the absence of metals in the previous session’s late bounce and the weakness of the metals sector compared with a number of other risk assets.

Liquidations Extend the Decline

The drop below $4,000 spurred additional long liquidation from investors, 12 years’ senior Ole Hansen said. The relocation resulted in further job cuts, as traders reacted to the technical problem.

Some additional pressure has been added by ETF outflows and a significant reduction in speculative positioning. This has trimmed down a portion of the overcrowded bullish position, but selling has yet to settle.

The graph of investor demand for gold against spot gold reveals that holdings of ETFs decline when gold prices fall. A second panel shows less aggressive positioning overall in the futures market, and that investors have been pulling back during the pullback. Interestingly, the correction has continued despite the easing of some macroeconomic risks.

Macro Conditions Become Less Hostile

New U.S. economic data has tempered hopes that the Fed will continue raising rates.

Any worries about inflation have subsided, and weaker labor-market data have reduced the likelihood of further steep interest rate increases. Treasury yields, which were higher earlier in the week, have also slipped.

The developments would normally ease the pressure on non-yielding assets like gold. Still, the metal hasn’t been able to get a boost fully from a strong U.S. dollar and from ongoing ETF selling.

The overall climate is evolving to be less challenging, but investor confidence is still weak, Hansen said.

To regain control, Gold must now get the ball moving in reverse, or turn toward buyers, through some type of ETF buying. Meanwhile, the technical outlook is still poor, with $3,900 as the next major support level while $4,000 is the first resistance level.