Bears win for now as gold finally breaks out of its range!

Gold was always going to break one way or the other eventually, and this round goes to the bears.

After several weeks of relatively tight range bound trading, gold broke down overnight, falling roughly USD $30oz to USD $1264oz. News China is looking to launch a global gold exchange in Shanghai (which many would see as bullish for metals seeing the incredible physical demand there) was overwhelmed by technical selling and emboldened shorts, who looked at a range of headline beating US data to push metals lower.

The sell off lasted most of the day, starting in Asia and Europe, with gold heading down to the low USD $1280oz range, and by the PM Fix in London, prices were at USD $1275oz.

It wasn’t only gold that moved overnight, but also stocks, with the S&P500 powering on to a new all time high, reaching 1911.60, up 0.60% for the day, whilst the NASDAQ put on over 1% for the night. Despite this, and contrary to the economic data, the US 10 year Treasury yield edged lower, to 2.518%

In terms of actual data overnight in the US, Westpac had a decent headline wrap, stating “US durable goods orders rose 0.8% in April, above expectations for a 0.7% fall, while last month's 2.6% gain was revised to a 3.6% gain. The outcome was flattered by strong defence/transportation. Ex-transport orders rose a more meager 0.1%. S&P/Case Shiller March home prices rose 1.2%, ahead of expectations for a 0.7% gain. Markit's preliminary May Services PMI jumped from 55 to 58.4, beating expectations. The Conference Board's consumer confidence survey matched expectations, increasing to 83. The Richmond Fed manufacturing index came in unchanged at 7, a touch weaker than consensus while the Dallas Fed survey slipped from 11.7 to 8, also slightly below expectations at 9.5.”

Back to gold, and whilst the weakness in prices overnight was disappointing for the bulls, the market needed to break out of this range at some point, and the path of least resistance had clearly been to the downside.

It will be interesting to see what happens now, with some traders now eyeing the USD $1260oz range as support, with a move through this likely to see gold move down towards USD $1240oz, if not re-test the June and December 2013 lows around USD $1200oz.