Sharp Selloff in Gold, Further Losses Likely?

Sharp Selloff in Gold, Further Losses Likely?

Sharp Selloff in Gold, Further Losses Likely?

Gold suffered a sharp selloff in yesterday’s trading sessions when risk aversion weighed on higher-yielding assets. Price dropped from the $1,200 level to $1,177, with the current consolidation suggesting that another leg lower is possible.

However, stochastic is reflecting a bullish divergence, with price forming higher lows from earlier in the month and the oscillator showing lower lows. A bounce could take price back above the $1,200 level, although RSI is suggesting that a continuation of the selloff might still be possible.

The 100 SMA is below the 200 SMA on the 4-hour chart, signaling that a downtrend is forming. Confirmation would be seen on a strong candle break of the current support area and possibly a close below $1,170.

Gold Price Forecast

Gold is usually seen as a hedge against dollar inflation, and the Greenback’s gains have fueled losses for the precious metal these days. Traders are expecting the Fed to hike interest rates in September, which would weigh on inflation and gold.

Hopes of a Greek debt deal also weighed on prices, as traders moved their safe-haven holdings elsewhere. Other metals, including silver, platinum, and palladium, also traded lower.

The upcoming EU summit could still push gold prices around, depending on the outcome of events. More traders are believing that the negotiations will bear fruit and allow Greece to stay in the euro zone and avoid defaulting on its debt. This could mean more losses for the precious metal, possibly until the next major support at $1,150.

On the other hand, a bounce up could lead to a move up to $1,200 or even until the next resistance at $1,220 to $1,230. There aren’t a lot of major market catalysts lined up on this set of events though, which suggests the possibility of further consolidation among commodities unless risk sentiment shifts again.

To contact the reporter of the story: Samuel Rae at

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Samuel Rae is an active retail trader across a variety of assets, including currencies, stocks and commodities and the author of Diary of a Currency Trader (Harriman House). His personal strategy focuses primarily on classical technical charting patterns with a fundamentally supportive bias, combined with a strict, risk management-driven approach to entries and exits. He is an Economics graduate from Manchester University, UK.