Spot gold was down $127.30 to $1,349.70 per ounce. The SPDR Gold Shares closed down $12.64, or 8.8%, at $131.31.
This type of price action here today comes as no surprise. The close on the lows Friday was a pretty decent tip-off that there could be additional bloodshed today in the precious metals markets and at this point that would be an understatement.
Many are wondering what has led to such a dramatic selloff and change in sentiment. There does not appear to be a single, sole catalyst for gold's demise recently but rather a group of issues that have weighed on the market.
It would be logical to assume that the strength in the U.S. Dollar index, along with the strength in the equities markets as well as a strong appetite for risk have played a large role.
Gold prices have not been the beneficiary of perceived safe-haven buying in recent months. Perhaps it is the Federal Reserve that has driven the selling, and the threat of higher interest rates. Or maybe the threat of additional central bank sales following Cyprus.
From a technical standpoint, gold's failure to take out the $1,800 level likely weighed on sentiment. After trading sideways from approximately $1,550-$1,800 since September of 2011, the market finally broke out to the downside not only breaking out of the range but leaving a confirmed double top in place on the monthly chart. This has likely led to a huge amount of technical selling. Likely there was a massive amount of sell stops below the previous trading range, and the price action since those stops were triggered has been swift and severe. In fact, gold has fallen so far so fast it is likely that even some of the more steadfast bullion bulls have now thrown in the towel.
For many shorts that caught this move, it has been quite a ride. For the short-term trader or investor, there may still be an opportunity to play the short side. For those who "See the forest through the trees," however, this may prove to be nothing more than an opportunity to buy gold bullion at lower price levels.
One must only look at a quarterly chart or yearly chart to see that the uptrend in gold remains intact on the larger timeframes. In addition, many of the global issues that could be bullish for gold are still here and would not appear to be going away anytime soon.The question now is, where will gold prices stop?
It is hard to tell since the market has sliced through so many potential support levels like a knife through warm butter. The fact is the market will stabilize when there is no one left to sell.
When the bearishness has reached an extreme, perhaps a selling climax to $1,300 or lower is in store. We shall see. Until we see a selling climax, additional downside for gold prices is likely.
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This article was written by an independent contributor, separate from TheStreet's regular news coverage.