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Sunday, 20 January 2013

Precious Metals: Is Gold Bottoming?

Global inflation failed to meet expectations in 2012, and gold lost almost 9% from its high. Will the precious metal perform better this year?  

Since last October, speculators have sold more than 6 million ounces of gold futures.  Inflation has been subdued and investors have discounted the numerous quantitative easing manoeuvres. As a result, the market has been declining, but it now appears to be bottoming out. The RSI indicator is signalling oversold conditions. Gold futures could rise to 1760 and eventually to 1800. However, supports can be found at 1610. 

Historically, the gold market has tended to be weak during the first part of the year, before expanding in the second six months. In effect, world economies are prudently moving out of the slumps. In the US, retail sales increased 6% in the last six months of 2012. Housing starts moved up 12%, while the unemployment rate could decline further. Inflation is expected to rise as a consequence of the massive amount of money around, and central banks will have to find a way to absorb the huge amount of liquidity they have provided during all these years. Nevertheless, their balance sheets should rise further, meaning that gold prices should be supported this year.
On the other hand, the Philly Fed and Empire State manufacturing surveys fell in January.  Consumer confidence was weak. Nonetheless, the worst should be over for now. Bond prices are expected to decline, while the S&P 500 index could soon test 1500. The US dollar may rise briefly, but the medium–term trend is still pointing downwards. In Europe, last year’s weaker euro promoted exports, improved external accounts and reduced trade imbalances. Peripheral nations, such as Italy, Spain and Ireland and Portugal, are regaining their competiveness. Labour costs in the Southern States were almost 10% lower than 2008.The debt reduction in the Eurozone should continue in the months ahead, as the recession is bottoming out in most European nations. Exports from Spain have been particularly strong within the European Community. EUR/USD is finding a strong resistance at 1.3460. A move above 1.3495 is necessary for 1.36. Declines can instead find support at 1.320 and 1.3120.

In reality, central banks want to diversify forex reserves away from traditional currencies. According to GFMS’s gold survey, in 2012, central banks net gold purchases hit 536 tons, the highest level since 1964. Russia was the top buyer, but Brazil and South Korea have been strong players as well. The appetite for gold should not decrease in 2013. Nonetheless, a rise of commercial and speculator demands are necessary for higher prices. The incertitude over the fiscal challenge in the US can support gold short-term.  In addition, investors are closely monitoring the rupiah fluctuations. A rise of the Indian currency over the US dollar could boost gold prices, despite the increase of import duties from 4% to 6% announced by the Indian government in January
Angelo Airaghi,
The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed, neither the information presented nor any opinion expressed constitute a solicitation of the purchase or sale of any forex, futures or commodity product. Those individuals acting on this information are responsible for their own actions. Forex, futures and commodity trading may not be suitable for all recipients of this report. The risk of loss in trading forex, futures and options can be substantial. Each investor must consider whether this is a suitable investment. All recommendations are subject to change at any time. Past performance is not a guarantee of future results

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