James Hyerczyk, Futures Hound
Published 10/19/2010 - 8:58 p.m. EST
December Gold sold off on Tuesday after China’s central bank raised interest rates. The move by China surprised traders who began selling riskier currencies and commodities.
The People’s Bank of China raised its benchmark one-year lending and deposit rate by 25 basis points effective from October 20, the first increase in nearly three years. The move was most likely tied to pressure from the U.S. to increase the value of the Yuan. Others believe it was an effort to prevent the economy from overheating. The action by China triggered a rally in the U.S. Dollar, thereby weakening demand for gold and silver.
The current break in the gold market is the largest in terms of price and time on the daily chart in a few months. This could be an indication that further downside movement is coming.
The current main bottom on the daily swing chart is $1325.60. A trade through this price will turn the main trend down.
Based on the current closing price reversal formation, the first down side target is the 50% level at $1313.00, followed by the Fibonacci level at $1295.30. On Wednesday, an uptrending Gann angle comes in at $1293.00. This makes $1295.30 to $1293.00 an important support cluster.