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EURUSD breaks above resistance - PM Bulletin
31 Jan 2017
Equities recover after Monday’s sell-off - AM Briefing
31 Jan 2017
Trending markets and Andrews’ Pitchfork -Trading Guide
30 Jan 2017
Investors rattled by Trump’s curbs - AM Briefing
30 Jan 2017
Dow holds above 20,000 as dollar firms - AM Briefing
27 Jan 2017
Dow breaks above 20,000 - Video Update
26 Jan 2017
Dow at 20,000 boosts risk appetite - AM Briefing
26 Jan 2017
Dow finally breaks 20,000 - PM Bulletin
25 Jan 2017
Wall Street leads stocks higher - AM Briefing
25 Jan 2017
Consolidation continues - Video Update
24 Jan 2017
Dollar recovery helps lift sentiment - AM Briefing
24 Jan 2017
Money management and stop-losses -Trading Guide
23 Jan 2017
Stocks fall on US protectionism fears - AM Briefing
23 Jan 2017
Trump inauguration in focus - AM Briefing
20 Jan 2017
A look-ahead to Trump’s inauguration - Video Update
19 Jan 2017
ECB President Draghi’s press conference in focus - AM Briefing
19 Jan 2017
Dollar steadies after sell-off - Video Update
18 Jan 2017
Equities drift in featureless trade - AM Briefing
18 Jan 2017
Dollar pull-back lifts precious metals- PM Bulletin
17 Jan 2017
Dollar slumps in early trade - AM Briefing
17 Jan 2017
Charting analysis for beginners - Trading Guide
16 Jan 2017
Sterling slumps on “Hard Brexit” concerns - AM Briefing
16 Jan 2017
Earnings in focus - AM Briefing
13 Jan 2017
Fourth quarter earnings in focus - Video Update
12 Jan 2017
Market Info Update: Martin Luther King Day Monday 16th January 2017
12 Jan 2017
Dollar lower as Trump skips stimulus talk - AM Briefing
12 Jan 2017
Trump news conference - Video Update
11 Jan 2017
Trump press conference in focus - AM Briefing
11 Jan 2017
Has gold turned a corner? - PM Bulletin
10 Jan 2017
Another mixed start for Europe - AM Briefing
10 Jan 2017
Trading Psychology - Trading Guides
09 Jan 2017
Sterling slips on "Hard Brexit" fears - AM Briefing
09 Jan 2017
Non-Farm Payrolls in focus - AM Briefing
06 Jan 2017
Non-Farm Payroll look-ahead - Video Update
05 Jan 2017
FOMC minutes viewed as hawkish - AM Briefing
05 Jan 2017
Look-ahead to release of FOMC minutes - Video Update
04 Jan 2017
FOMC minutes in focus - AM Briefing
04 Jan 2017
Strong start to 2017 - PM Bulletin
03 Jan 2017
Equities push higher in first session of 2017 - AM Briefing
03 Jan 2017
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 Tuesday 10 January 2017

Has gold turned a corner? - PM Bulletin

 

 

In early December 2015 gold hit a multi-year low when it fell below $1,050 for the first time since February 2010. That low proved to be the culmination of a sell-off which saw gold decline from over $1,900 per ounce in September 2011 for a high-to-low loss of 45%. For added context, gold spent the first couple of years of the new century stuck below $300, soon after the then-Chancellor Gordon Brown demonstrated his lack of trading ability by telegraphing his desire to sell off much of the UK’s gold reserves. There followed a slow but steady appreciation which saw the metal break decisively above $1,000 per ounce in September 2009.

Just over a year ago there was a fair amount of speculation (even from gold bulls themselves) that gold could break below $1,000 and go on to retest support around $800. That didn’t happen. In fact, gold soared over 20% in the first two months of 2016 and was the stand-out commodity over that period. Fundamentally, the rise in gold coincided with a period of great financial uncertainty. Last year began with concerns over the junk bond market, the first Fed rate hike since June 2006 and an unexpected yuan devaluation which triggered a sharp sell-off in global equity markets. Technically, gold was oversold.

The yellow metal made further gains in the first half of 2016, pushing above $1,350 by the end of June. But then it began to decline as it became apparent that the UK’s surprise vote to leave the EU was not as damaging to financial markets as many had predicted. But this pull-back had all the hallmarks of consolidation within an uptrend. Then we had the US Presidential Election. Trump’s shock victory saw gold spike higher - for an hour or two. Then came a sharp sell-off which saw the vast majority of gold bulls capitulate until we hit an oversold condition in mid-December. Even then (just like the year before) it felt as if gold could have further to fall. There was speculation that the Indian government could ban imports (following on from its shenanigans with its paper currency) which would pull out a vital support from physical demand. That didn’t happen, but then the Fed raised rates for the second time in 12 months, and forecast that it could tighten by an additional 75 basis points over 2017 - 25 basis points more than generally anticipated. Despite this gold managed to consolidate - even as the US Dollar Index hit a 14-year high at the beginning of this year.

So what now? The chart below shows that gold is close to butting up against resistance around $1,190/1,200. It also shows an RSI which has shot higher yet is not in overbought territory. There could certainly be more upside for gold from here, although there is nothing in the calendar over the next few months which could boost safe-haven demand. But the main consideration has to be what happens to the dollar. Since mid-December gold has managed to rally despite dollar strength. But that positive correlation is unlikely to hold. If the dollar continues to strengthen from here as US interest rates diverge from the rest of the developed world, then gold could struggle to push much higher in the short-term. 


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Posted by David Morrison

Category: PM Bulletin


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