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James Hyerczyk
Gold, Silver, Platinum, Palladium

Gold futures are trading lower on Tuesday after the spot market hit an all-time peak earlier in the session. Cash market prices fell over 1.8% as the U.S. Dollar firmed and investors booked profits ahead of the start of a 2-day Federal Reserve meeting and as U.S. policymakers edged closer to another massive stimulus measure.

At 13:06 GMT, December Comex gold futures are trading $1957.80, up $2.40 or +0.12%. Earlier in the session, the market reached a high of $2000 before plunging to $1927.50 or a $72.50 decline.

The price action suggests a “buy the rumor, sell the fact” situation could be developing. Speculators have been driving prices higher for weeks in anticipation of additional fiscal stimulus and possibly a little monetary help. Now that it looks like the government is ready to provide the fiscal help by as early as Friday and the Fed could come out a little dovish on Wednesday, the short-term incentive to keep buying gold has been dampened.

We saw a similar pattern during the March – April time period, and that mostly sideways trade extending into early July. It’s possible we see this type of pattern again as we near the election. Furthermore, investors aren’t going to be content that there has been enough stimuli pumped into the economy until a coronavirus vaccine has been developed.

I don’t believe gold can be overbought so I’m not going to go there. Let’s just say it ran out of buyers at current price levels, giving longs an excuse to turn into sellers.

The break from the high exceeded the three previous breaks which were about $38.00 so the selling was real. We could shoot back up about 50% to 61.8% of the intraday break, and if that move is met with fresh selling pressure than longs should be careful handing on to positions.

That chart pattern would send a message that the market is headed into a value area that is currently a $50 spread between $1909.70 and $1859.10.

Since the trend is up, we may see buyers come in on almost every dip, but if you’re a trader and you don’t know your exit before getting in the trade, I would pass on the opportunity. Getting caught on the wrong side at these price levels can be a rather humbling experience. I’m not predicting a major top but think about those fellows who thought $1900 was a good entry level nine years ago. They just got their money back on Monday.

For a look at all of today’s economic events, check out our economic calendar.

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