Gold Tumbles – Sets up Crucial Test

posted in: GLD, Gold, Gold Stocks | 0

Better than expected jobs growth during January and a strengthening trend in non-farm payrolls sent gold futures tumbling lower this morning:

Payrolls_change

The warning signs for gold have been mounting in recent days. First it was the large¬†spike in speculative long interest according to CFTC data, then it was the series of double-tops that were put in place ($1307, $1286…) and the increasingly shallow bounces which we saw earlier in the¬†week. This morning the dam broke following the announcement of the January non-farm payrolls report:

GC_hourly

Gold futures quickly tumbled below $1240 before stabilizing at an area of previous support/resistance ($1239/$1240). Gold had been forming what could be construed as a bullish flag on the daily chart, that interpretation is now dashed and it will take time to heal the technical damage.

The $1240 level now becomes key on a daily closing basis. If this holds as support today it will be quite constructive and I believe we could quickly see a move back up to the $1260-$1275 range early next week:

Gold_Daily

A move below $1240 will set up a test of the uptrend which began at the November low. Such a move lower will likely mean a much longer and more tedious basing process will have to take place.