U.S. Markets closed

Gold Market Fraught With Danger

Matt Zeman

NEW YORK (TheStreet) -- The gold market today could be described in just four words: "sell stops" and "long liquidation."

Spot gold was pounded without mercy today and briefly traded below $1,500. Prices did stage a slight bounce off the lows, however, and currently spot gold is quoted at $1,502.73, down $62.27 per ounce on the day. Ouch. Gold futures didn't do any better, and the SPDR Gold Shares (GLD) took it on the chin as well, trading down $5.73 to $145.33 as of this writing.

Many are left wondering what drove such a vicious day of selling today. After all, the U.S. dollar index wasn't much of a factor today and traded flat most of the session. Equities have been under pressure all day, yet the perceived safe-haven bid that has so often come to gold's rescue was nowhere to be found. Crude oil was sold off as well -- could that have been responsible for gold's demise today? Not likely.

The fact is this was a good, old-fashioned washout today. Sell stops below the April 4 lows were triggered en masse and drove bullion to its lowest level since the summer of 2011. The question now is will $1,500 hold? Have enough of the gold bulls been shook out for the market to maintain a tradable bounce? It seems unlikely.

Given the fact that gold is now trending lower -- not only in the short term but the monthly charts as well -- it seems that the possibility of more downside for bullion is very real. Now we may see a bounce from $1,500, perhaps even a sizable drop.

But the psychology surrounding the gold market has taken a big hit along with the charts. This market has gone from "buy the dips" to "sell the rips." For right now, it is hard to imagine gold staging a truly sustainable rally. After all, many of the factors considered extremely bullish for gold have not changed, yet the market has not been able to get anything going to the upside. That is usually a danger sign.

The next stop for gold prices could be the 200-day EMA on the weekly charts, which comes in around $1,438 or so. At this point, it seems the yellow metal would need an additional outside catalyst to stop the bleeding. Perhaps a stock market correction or escalation of tensions with North Korea. Maybe an EU bank run. Either that, or every gold bull getting taken out of the market. It'll be time to buy when there is no one left to sell.

Please visit our Web site for updates on the gold market and useful information for purchasing the physical metal.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

It's Official: Action Alerts PLUS beats the S&P 500 with Dividends Reinvested! Cramer and Link were up 16.72% in 2012. Were you? See what they are trading for 14-days FREE.