We said in yesterday's online blog that further declines were certain to follow on from Friday's bloodbath, however nothing prepared us for the scale of the selling yesterday.

Gold was sold off mercilessly, as wave after wave of declines relentlessly pushed the price down all day.  The price hit a low of 1336 in the evening, an astonishing $136 down on the day and well over $200 down since Friday morning.  Gold fell further overnight, hitting a low of 1320 before recovering and is currently trading around 1370.

We have just witnessed the largest 2 day decline in 30 years that has taken the daily and weekly RSI levels to historically low levels.  Clearly this is no ordinary correction and, regardless of what the conspiracy theorists come up with to explain the severity of the crash, this signals one thing to us - deflation.

The prospect of deflation after many years of ultra low interest rates and trillions of dollars pumped into the economy through quantitative easing is frightening - what else can central banks do, all of their big guns have been deployed and still we appear to be facing a deflationary crash.  Other commodities are suggesting this is the case and equities joined the bloodbath yesterday as well.

Our strategy in gold has now changed - for the past decade our overriding bias was to buy the dips and tend to favour the long side of the trade - we will now favour selling the rallies until such time as the bull trend can re-establish itself.

However, "extremely oversold" doesn't begin to describe gold at current levels, so a recovery rally of some sort is highly likely here.  Any strength will be seen as an opportunity for market participants to close out their longs or open new short positions and we are sure that the selling has not finished yet.

Today's video for subscribers looks at the historic action of the past two days in more detail, some important long term Fibonacci retracements and our strategy for our next trade.

For many months now, we have been saying that a break of 1525 would see a massive plunge in gold, as all of the sell stops built up over the past 18 months under 1525 and 1500 would be triggered, causing a cascade lower.

However, with major support at 1525-1530, we did not think there was a high likelihood of this happening, though the possibility was never ruled out and we were always on alert for this scenario.

On Friday, we saw the event we had previously speculated occur - gold sold off steadily all morning from 1560, dropping through support at 1540 and quickly falling to 1525 before a brief bounce.  Although we suspected this level would hold, the bears could smell blood and went in for the kill, driving gold back down to 1525 and breaking through at the second attempt on huge volume.

As expected, gold dropped in precipitous fashion, finding initial support at 1490 before bouncing, though the relentless selling quickly returned to push the market down to 1477 by the close.

We warned our subscribers that a gap down was possible on Sunday night and although this did not occur, the market sold off hard again, dropping all the way to 1426 before finding some support, though again the price looks weak and more declines look sure to follow.  Where the market will find support is difficult to say, though we have identified a couple of potential support areas for our subscribers.

We went short on the break of 1525, closing out this morning at 1452 for a $70 gain.

Today's video for subscribers looks at Friday's trading in more detail, some potential areas of support and our strategy for our next trade.

After attempting to rally yesterday, gold found selling pressure return around the old support level at 1567.  The price then fell back to close around 1560 and has continuing lower this morning.

Gold is currently trading around 1557 and in our view looks like it wants to retest 1540.  As we noted yesterday, a break of 1540 would see a rapid drop towards 1525.

It is a little concerning for the bulls that the dollar weakness this week has not lifted gold at all, though perhaps this is not entirely surprising considering the recent lack of correlation between the dollar and gold.

Oil has given back most of its gains from the recent rally and is approaching a key support area at $92 a barrel.  A drop below this support will see a retest of support at $90.

There are a number of data releases from the US this afternoon that could affect gold including retail sales numbers and the Producer Prices Index, a key indicator of inflation.

Today's video to subscribers looks at the recent trading and our strategy for our next trade.

Gold was under pressure all day yesterday, the sell off accelerating as the afternoon wore on, with gold falling $30 before the market found support at 1557.  Overnight, gold has fallen further, testing support at 1554 and currently trading around 1558.  The market is looking vulnerable to further price falls from here.

At first it was unclear why the heavy selling had been triggered, before online rumours started appearing that the FOMC minutes, due to be released at 7pm UK time, had been "leaked" early.  This was soon confirmed and the hawkish nature of the minutes explained the sell off to some extent.

However, the Fed meeting pre dates the string of weak economic data from last week, particularly the terrible Non Farms Payroll number, so it is very likely that the Fed's stance will have softened somewhat since that March meeting.

The break below 1560 suggests a retest of 1540 is on the cards and if that level falls, major support at 1525-1530 looms back into view.  First resistance comes in at 1563-1567, though the market will have to get back above 1590 to get the bulls in confident mood.  However, it will not be time to declare the correction over until 1620 is broken.

Today's video for subscribers looks at the trading action from yesterday in more detail and our strategy for our next trade.

Gold moved higher in the COMEX session yesterday, surging to a high of 1590 before dropping back slightly to close around 1585.

It is interesting to note that recently the rallies in gold have been occurring during the NY session rather than during the Asian trading hours - this suggests the market is moving back to a bullish posture rather than relying on physical demand from Asia to underpin the market.

This morning, gold has fallen back to 1582, though the impulsive nature of the rallies since Friday is encouraging for the bulls.  The next target for the bulls is the 20 DMA at 1592, then the 50 DMA at 1607 before the key resistance level at 1620 comes into play.

Support can be found initially at 1580-1582, then below that at 1567 and 1560.  A break below 1560 will suggest a retest of 1540 and potentially a move down to 1525.

Equities appear to be slowly forming a top, though this may take a few more weeks to complete.  We do not expect to see a powerful rally in gold until equities break down and correct.

Today's video for subscribers looks at yesterday's trading in more detail and our targets for this rally.

After the flurry of trading activity in the wake of the NFP data on Friday, the new week started off in muted fashion, with gold drifting lower during the morning session.

The losses accelerated during the afternoon, with gold dipping to 1567 before bouncing back to close around 1573.  Overnight, gold has found some physical demand out of Asia and the price is currently trading around 1576.

With a number of data releases later today, we should see a bit more trading activity - the bulls will want to see gold take out 1583, the high from Friday, to gain confidence that a bottom is in, whilst the bears will be aiming for support around 1560.

Oil is recovering after last weeks huge declines, which may help gold, whilst the dollar remains stuck below 83 and is clearly struggling to move above that level, again potentially supportive for gold.

We have said many times before that we do not expect a major rally in gold to begin until stocks correct - it appears to us that the S&P 500 is forming a top, however this may take a few weeks to complete, as is often the case with major tops in equities.

Today's video for subscribers looks at the recent trading in more detail and what it means for gold

The eagerly awaited Non Farm Payrolls (NFP) number was released on Friday, with the expectation of around 190,000 new jobs created in the US economy in March.

Although the weak ADP jobs report earlier in the week had signalled that the NFP number might fall short of this expectation (and many online commentators were suggesting 160,000 might be a more realistic print), nobody was prepared for such an abysmal announcement of a mere 88,000 new jobs.

Gold shot higher on the release of the data, hitting 1575 almost instantly before quickly falling back to the mid-1560s.   This initial reaction was rather muted, considering the importance of the jobs number and the size of the miss.

However, as the afternoon session went on and the impact of the feeble NFP number was digested further, gold started rallying strongly into the close, finishing at the highs of the day at 1583.  The past 5 or 6 major economic data releases out of the US have all missed expectations, many of them by a wide margin, making the likelihood of a reduction or halting of Quantitative Easing significantly less than even a week ago.

This should pressure the dollar and give gold a much needed boost - this, together with the escalation of hostilities in nuclear armed North Korea, should see gold move higher this week on the back of shorts covering their positions and new longs entering the market.  Oil is stabilising after sharp falls last week and again looks ready to move higher.

Gold needs to move above 1620 to confirm an intermediate bottom is in and kick start a long awaited rally in gold.

Today's video for subscribers looks at Friday's trading in more detail and some patterns we look for that signal when a bottom is in.

Gold has been in a bull market for the last 12 years, with year on year gains in every calendar year since 2001.  We believe that this bull market has a lot further to go, though we expect a top of some significance in 2013, year 13 of the rally, being a Fibonacci number.

After a correction, we then expect the gold price to move higher again in another multi-year rally, taking us to a major top in 2022, a 21 year super rally in precious metals the like of which the world has never seen before.

It is clear from the chart below that gold makes a cyclical top every 22 months.  The last such major top was in September 2011, giving us our next cyclical top in July 2013.

From an Elliot Wave perspective, we are in a Wave 4 corrective pattern following the Wave 3 top in September 2011.  

It is now clear, after 18 months of corrective action in gold, that the Wave 4 pattern is a complex 3-3-5 correction, made up of two linked ABC corrections together with a final 5 wave impulse decline.

We are approaching the end of the final 5 wave decline, our best guess is that we have just started Wave v of 5, the final decline.  The chart below sets out this Elliott Wave count in detail.

This means that we still have a major Wave 5 rally to complete the pattern, with the first impulse move of this 5th Wave to take us to the cyclical high in July 2013.

After finally making a bottom, we expect the price to move sharply higher over the next 4 months to arrive at our projected top in July 2013 at around $1,900, potentially forming a large “double top” on the charts.

We then expect a correction to unfold in gold and silver, taking gold prices back to $1,700-$1,750 before the next major rally begins, Wave 3 of 5, taking gold far beyond $2,000 in the next few years.

It is often the case that Wave 5 in a commodities rally will be the strongest and most powerful wave, lasting longer than even Wave 3 and often extending to  a more complex 7 wave structure.

Keep up to date with our market analysis by visiting the gold trading blog daily.  If you are an active gold trader, try out our 2-week free trial to trade alongside our pros and get access to our trades in real-time to help you trade gold online with success!

Gold retested the overnight lows at 1540 yesterday afternoon and then moved higher, finding resistance at the level of previous key support at 1554 before closing at this level, forming a bullish "hammer" candlestick on the daily chart.

After three days of hard selling, we are not convinced by the validity of this hammer and it has not been confirmed by follow through buying today, though it cannot be discounted at this stage.

Today's major news is the US Non Farm Payrolls (NFP) number for March - as we know, this is the most closely watched economic indicator and has taken on even more importance in recent months following the Fed's statement that they have a target unemployment rate of 6.5% that will spell the end of Quantitative Easing.

We expect quiet, range bound trading until the release of the NFP data at 1.30 UK time, after which the gold market may move sharply.  The previous 5 or 6 releases of economic data from the US have missed expectations, including the ADP employment report, so the market expectations for a strong payroll number may have been reduced somewhat.  The concensus is for an additional 190,000 jobs reported and for the unemployment rate to remain at 7.7%.

Even though the recent data releases have, on the face of it, been gold positive, the gold price has continued to exhibit weakness, falling to a 10 month low in recent trading sessions.  There is therefore a significant danger of a gold sell off following the release, particularly if the data is stronger than forecast.

Today's video looks at the recent trading in more detail and some Elliott Wave counts, as well as what we look for as signs of a bottom.

We noted yesterday that the weakness in silver and the fact that it had breached the February lows gave us cause for concern in relation to gold and we were correct. 

Gold broke through the key 1554 support level late yesterday and has continued to  sell off overnight, hitting a low of 1540.  The move down is clearly impulsive, compared to the corrective choppy action of the past month and there appears to be more downside to come, possibly a lot more.

The major support level at 1525 is not far off now and the selling in gold is accelerating as we approach this level.  Silver needs watching as it has led gold lower in the past few days and is also homing in on major support around the 26 level.

It looks more and more likely that we are going to have a "washout" plunge, possibly taking out all of the sell stops below 1525 and clearing the decks before finally moving higher in the next rally phase.

The dollar is much higher overnight on the back of the massive Japanese economic stimulus package announced overnight, pressuring gold further, whilst equities continue to climb and oil has also sold off sharply.

Today's video looks at the price action of the last couple of days and our strategy for our next trade.