Gold drops $30 in commodity selloff

In the Lead: “Fed Tweets: Weak!; Specs Tweet: Eek!”

Ben Bernanke’s press conference and the preceding FOMC announcement hardly contained any comforting words for those who have made it a habit to make money on the Fed’s largesse up to this point. The fact that US growth and employment forecasts were scaled back, and, despite such projections, the Fed gave only the slightest of hints that it might be willing to offer further “accommodation” of one type or another clearly disappointed commodity speculators and their subsequent selling off of various sector assets was, indeed, plainly visible this morning.

Well, every good thing must eventually come to an end. And, a ‘’good” thing this was, indeed; commodities had gained 80% through the end of last year precisely on account of the truckloads of “easy money” that drove away from the Fed’s doors over two years’ time. Nonetheless, PIMCO’s Bill Gross tweeted to the world yesterday his prediction that the Fed will unveil QE3 at its Jackson Hole, WY retreat coming up in August.

Of course, Mr. Gross had also said in early June that QE3 was unlikely, even with poor jobs growth in the US economy. There is, of course, another explanation for the apparent about-face by PIMCO’s fund manager. CNBC believes it has the answer. It has to do with the predicted massive sell-off in Treasurys at the end of QE2 (now) not having materialized.

Crude oil led the declining commodities’ pack this morning, losing more than 4%(!) amid of heavy selling by speculators and sinking to the $91.55 mark per barrel. Inventories of black gold rose for the first time on a month and once the Fed indicated that growth may be subpar for some time to come, the realization that fundamentals may matter after all yielded the aggressive selling we saw this morning.

Precious metals prices were not spared the damage seen in other areas in the commodities’ space this morning either. Spot gold traded in the first half-hour of the Thursday session in New York with a sizeable, $30.00+ (1.85%) per ounce loss in value. The bid-side in gold was indicated at $1,517.70 per ounce shortly after the market’s opening, when, just one day ago, the fact that bullion had managed to once again touch the $1,557 mark (a seven-week high) had actually increased the odds of it reaching for not only its previous highs near $1,577 but possibly as high as the $1,600- $1,630 area.

As of today, the support-line for gold crosses the $1,528 level on an Elliott Wave basis. A solid close beneath the $1,528- $1,530 zone – according to EW analysis – would mean that a “major phase down for gold prices” has possibly commenced. Had gold pushed to fresh highs, it would have done so without the collaboration of silver. In fact, there was – as of last night – a “massive non-confirmation” in gold relative to silver; as large as any seen over the past ten years. Such a divergence suggested (to the EW team) that gold was possibly near the end of its rise, and not some other phase in the cycle.

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