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    The Gold-ilocks Zone for Bears

    In yesterday’s FOMC Minutes Instant Reaction piece, we used the analogy of Goldilocks and the Three Bears to describe Fed officials diverse views on whether the economy is running “too hot” or “too cold.” In retrospect, yesterday’s minutes were definitely in the “Goldilocks Zone” for gold bears: not only did they indicate that “several” Fed officials favored raising interest rates in June (though that’s much less likely after this month’s disappointing NFP report) and they’re not particularly concerned with the recent strength in the US dollar, nonchalantly commenting that the currency may rise further on monetary policy overseas. Greece’s full, on-time IMF debt payment earlier today also eliminated one potential source of risk aversion that could have supported gold price.

    Partly as a result of this outlook, gold is hitting new weekly lows as we go to press. After gapping higher over the weekend, the yellow metal briefly edged above 1220 before reversing and trending lower over the past three days. From a technical perspective, the pair is in a short-term bearish channel, and with today’s break below previous support at 1195, more weakness is favored from here.

    This view is further supported by the secondary indicators, with the 1-hour MACD trading below the “0” level and the RSI edging lower in a bearish channel of its own. That said, there is the potential for a bullish divergence to form on the one-day RSI, so bearish traders may want to reconsider their positions if the precious metal breaks back above the psychologically-significant 1200 level. For now though, the path of least resistance remains to the downside, and gold bears may start to eye the three-week low around 1180 next.



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