Gold fell sharply on slightly stronger volume than Monday’s session in what is becoming a wild circus act for the precious metal.  Gold dropped through all of our previous supports but has recovered above its highly psychological $900/oz level.  The positive correlation between gold and U.S. equities continued for the second straight session.  Gold may exhibit erratic behavior until the S&P commits to either a 900 + or – reality. 

We have seen misleading behavior from the precious metal before, so we will stick to the concept that gold will follow its negative correlation with equities during key fundamental movements.  Therefore, we wouldn’t be surprised to see the high volatility last throughout the week with important economic data and stress test Thursday on the way.  This also leads us to maintain our bearish outlook on gold since we have a bullish outlook on equities trend wise.  However, with the correlation out of sync, gold is presently a tough read.             

Gold continues to bounce around the critical $900/oz level.  Could it be that investors aren’t quite sold yet on an economic recovery, and are covering their bases until Thursday’s stress test?  Another reason behind gold’s relative strength could be a sign that China is adding more gold to its reserves in an effort to diversify from the Dollar.  However, these explanations are merely speculation until we receive some definitive evidence.  

Fundamentally we find supports of $897.73/oz, $895.34/oz, $893.61/oz, $891.87/oz, and $889.04/oz.  To the topside, we see resistances of $904.46/oz, $906.42/oz, $908.81/oz, $910.98/oz, and $913.15/oz. Gold is currently trading at $902.05/oz.

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