Direxion Shares Exchange Traded Fund Trust will put investors in panic mode today after gold did the unthinkable to crash below $1,200. The ETF has been having issues in the last one week after news broke that the U.S. Federal Reserve might raise interest rates in June. The fear of a June rate hike has triggered some selling from gold investors and many other bullish investors are staying on the sidelines.
However, not many people would have thought that the yellow metal could lose its shine and that the support at $1,200 won’t be holding for much longer. This morning, spot gold was down 0.8% to $1,202.80 an ounce after breaking the $1,200 support to reach a session low of $1,199.60 an ounce in Asia. Gold for June delivery was down 1% to $1,202.20 an ounce. The crash in gold prices today makes the first major decline that would see the yellow metal dropping below the critical $1,200 support level for the first time in three months.
Certain rate hike strengthens dollar to weaken gold
The decline in the yellow metal today can be traced to words from Fed chair Janet Yellen about the preparation of the Feds to raise interest rates “in the coming months”. Of course, there has been a degree of speculation about the Fed’s decision to raise interest rates but the words from the Fed chair added a degree of certainty to the rate hike.
Following Yellen’s statements, the U.S. Dollar climbed higher 111.00 than the Japanese Yen for the first time since April. More so, the dollar spot index gained as much as 0.3% this morning to mark its highest point since March. As expected, the gains in the US dollar often spells doom for the yellow metal, the Direxion Shares Exchange Traded Fund Trust might start the new week with losses straight out of the gate after closing with 7.82% decline to $70.87 last Friday.
Analysts are starting to develop bearish theses about where the yellow metal is heading now that it has broken down below the key support point of $1,200. William Wong, assistant head of dealing at Wing Fung Precious Metals in Hong Kong notes that “After $1,200, gold will try to break $1,160”. He goes on to say, “I think the market will be quieter today as U.S. and the UK have a holiday. So, after the Asian markets, the prices won’t change much”.
Where is the bullion headed?
Wall Street will be paying special attention to how gold and Direxion Shares Exchange Traded Fund Trust fares tomorrow when the markets open for trading. Unless the bullish camp finds enough reasons to trigger a rally, the yellow metal might drop down to $1,175 an ounce. If the bullion fails to find support at $1,175, you shouldn’t be surprised to see another crash towards $1,145 in the near term.
Wayne Gordon, executive director for commodities and forex at UBS Wealth Management thinks that the worst is far from over and that the yellow metal might be under serious pressure before this year ends. In his words, “the key risk for me now is not whether they will hike once, but actually whether they will hike twice: as a house, we believe they will hike twice in September and December… For me, it’s all about the data that’s coming in.”