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Gold Rallying On Back of US Dollar Gains

July 21, 2014 in Trading with Other Commodities

The gold price has rallied strongly in recent weeks to hit a high of $1322 per ounce in recent weeks. Renewed demand from Jewellers and producers together with increased global political tensions have caused the yellow metal to rally from lows at $1193. However despite recent gains the metal still remains far from the recent highs of 2011 when it looked certain to hit $2000 per ounce.

Give the metals fall from grace over the past 24 months the question as to whether the current rally can be sustained is one that is on many traders lips.


Why Investors Like Gold

Long before the Forex markets the world traded and valued its good and materials in gold. This historical sentiment that surrounds this metal perpetuates, and even in today’s world of FIAT currencies, gold is still seen by many as the ultimate store of wealth. Fear of inflation and the devaluation in paper currencies sees money move into this market. As global uncertainties increase, so too does the demand for gold.

How Much Has The Price Changed?

The price of gold has risen sharply in recent years as the metal has awoken form a long term bear market. The beginning of  new bull market can be traced back to 2001. The preceding 10 years saw the price barely move. However since this time the price of Gold in USD has since risen from a low of $385 per ounce to a peak of  $1889 at the start of 2011.

A long or Call trade on the gold price would have yielded high gains for the savvy investor.

Can The Current Rally Be Sustained?

Following falls from the high set in 2011, the Gold price has looked firmly in the grip of the bears. However the bigger picture may look brighter for trading gold. Maintaining a price above $1300 looks constructive and a push and a break back above $1400 may provide the impetus for a more sustained price rally.

From a chart perspective price action looks to be forming an inverse head and shoulders pattern. A move towards $1400 would provide support to this view.  Gold certainly seems to have found a floor at the current level. With further support from a rising USD and increasing political unrest and financial worries, it could be set for further gains.

Fed maintains taper momentum; cuts the cord to an unemployment threshold

March 20, 2014 in Forex Fundamentals and News

The FOMC meeting, chaired for the first time by Janet Yellen, announced the third instalment of a $10 billion cut in its monthly bond purchase program, a part of its quantitative easing agenda for bolstering the US economy.

The monthly bond purchase target now stands at $55 billion, comprising bond purchases of $ 25 billion and Treasury purchases of $ 30 billion.

The FOMC clearly placed recent slowdown in economic numbers at the door of adverse winter weather, at least partly, and was therefore encouraged to continue with the measured reduction in quantitative easing that was indicated in December 2013. At the press conference, Yellen also said that the FOMC expects “sufficient underlying strength in the economy to support ongoing recovery in the labor market.”

On interest rates, the FOMC pledged a continuation of a low rate regime, and delinked them from the hitherto 6.5% unemployment benchmark. The committee said it will now consider “a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments,” while maintaining a trajectory towards maximum employment and inflation of 2%. Analysts have dubbed the new system as “qualitative guidance.”

However, the markets were comforted by the words, “The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”

Later, at her press conference, Yellen hinted that the Fed could start raising shorter term interest rates within six months of the end of the asset purchase program, causing a sharp jump in bond yields, such as the 10 year UST whose yield jumped to 2.77% from 2.74% before the Fed’s press release. The DJIA hit the day’s low losing 210 points.

Gold was a major casualty of the Fed event – it continued its sell-off as highlighted yesterday and in the chart for today.


The dollar strengthened across the board, as shown in the ellipse on the chart of the dollar index below.



Gold drops as Ukraine appears to de-escalate

March 19, 2014 in Trading with Other Commodities

Russia’s annexation of Crimea became a fait accompli once the region voted through a referendum to secede from the Ukraine and become a part of Russia. Putin, pleased with the result, expansively assured Russian Parliament that he has no intentions of taking over other Ukrainian territory, as suggested by speculative rumours.

These developments have taken out a major pressure point in the geopolitical situation surrounding the Ukraine, and as a result, the recent ‘safe haven’ appreciation in gold has taken a big hit. Markets are now factoring in de-escalation in the tensions between Russia and Western powers.

Gold has fallen for the last three sessions, primarily as a result of the cooling in Ukraine, but also after the yellow metal corrected technically from the recent highly overbought levels, nudging investors towards taking some recent profits off the table. Gold is currently trading at $ 1344.


On the daily chart above, however, we note the emergence of a bearish “three-black-crows” candlestick formation as shown inside the golden ellipse. Interestingly, the price has reversed from the upper boundary of the rising channel in effect since December 2013. The parabolic SAR has also moved above the price indicating the likelihood of a negative trend.

It is not inconceivable that price could move down as low as $ 1310.

Is gold telling us something about the FOMC meeting?

The US Federal Open Market Committee will meet today and tomorrow for its rate policy decision to be followed by a press conference by Fed supremo Janet Yellen on Wednesday – her first in the new position. The market expects a continuation of the “taper” of $ 10 billion out of the monthly bond purchase program, though some circles expect a further cut in purchases. The markets are also looking forward to any indication of a policy change in respect of interest rates.

Economic data out of the US has been trending better in the recent past, and a Bloomberg survey says it is likely the Fed will draw courage to trim the bond program further. The drop in stimulus could further impact gold bearishly.

Germany’s Move to Repatriate its Gold Reserves

January 16, 2013 in Euro Zone

German newspapers’ prediction that a move is afoot by the Bundesbank to repatriate at least some of its gold reserves held with the New York Fed and the Bank of France, has come true.

The Bundesbank announced today a “new storage plan” that seeks to store half of its gold reserves in its own vaults by 2020.

According to the bank, the new storage plan gives weightage to “the two primary functions of the gold reserves: to build trust and confidence domestically, and the ability to exchange gold for foreign currencies at gold trading centers abroad within a short space of time.”

The bank also clarifies that since “France, like Germany, also has the euro as its national currency, the Bundesbank is no longer dependent on Paris as a financial center in which to exchange gold for an international reserve currency should the need arise. As capacity has now become available in the Bundesbank’s own vaults in Germany, the gold stocks can now be relocated from Paris to Frankfurt.

There are, however, motives that could be ascribed to this move to get back a part of the almost 3,400 tons of gold held abroad by Germany.

One, the Bundesbank may be paying heed to long-standing calls to audit its gold reserves for their real quantity and quality. Germany moved its gold reserves abroad during the Cold War for their security, and it appears that it missed the 2010 audit after the one in 2007. The Bundesbank has not been very forthcoming about the reasons for missing the audit.

Two, it could be that Germany is now worried about the economic conditions prevailing in the United States with its impending problems relating to the debt ceiling, and France, located in debt-afflicted Euro zone. This time Germany’s gold may need to be protected not from Cold War hostilities, but fiscal crisis confiscation. Considering the worsening scenario, Germany may feel that home is the best place for its $177 billion worth of yellow metal.

Three, the Bundesbank may want to look good in the eyes of the German people, reassuring them with its solidity, while the region is afflicted with economic crisis.

Whatever may be the true reason, the move could create an environment of doubt and mistrust between the major central banks of the world. More particularly, it may show the world is no longer confident in the UK or the US as the custodians for its gold reserves. It may be recalled that Hong Kong and Venezuela also moved their bullion home earlier.


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Gold Technical Update – WC 7th January

January 6, 2013 in Trading with Other Commodities

Gold Technical Update – WC 7th January

Gold (XAUUSD) plummeted lower and ultimately moved below the key $1630 per ounce level on Friday morning, this area marked the lowest level found since last August, and a drop of over 3% in just 24 hours.

This area held on the daily closing basis, with a subsequent rally to $1655 seen at the New York close.

See the following D1 Gold chart.

gold technical analysis

Gold technical analysis

India’s Current Account Deficit a Mounting Cause for Concern

January 3, 2013 in India

A rising oil bill, persistent gold imports and falling exports are ganging up to create a rising current account deficit headache for India’s Finance Minister, P Chidambaram.

The deficit is now 5.4% of the country’s GDP, as per figures released for the September quarter.

One of the measures Chidambaram may take is to make it more expensive to import gold. Indians are known for their voracious appetite for gold for investing, and for gifting during marriages and ceremonies. As a result, India is one of the biggest importers of gold globally. The most obvious route may be to hike duties further on import of the yellow metal, even though the import duty was doubled in March to 4%.

However, Chidambaram sees no reason to panic, considering investment flows from foreigners may be sufficient to finance the deficit. In addition, the country has about $296.5 billion in currency reserves, which, by themselves, are the equivalent of seven months of imports.

This puts the focus on flows from FIIs and FDI, and the need to make the country’s investment climate more attractive through reforms and therein lies the rub. India’s coalition politics make it difficult to push through radical reforms, though a start seems to have been made in retail.


Gold Technical Analysis – Dec 24th

December 26, 2012 in Trading with Other Commodities

Gold Technical Analysis – Dec 24th

Gold Technical Analysis

  • The price of gold has found support at a key level comprised of the following technical points of interest:  61.8% Fibonacci retrace, FE100 expansion from a potential ABC correction point and the previous resistance area around $1630 – as highlighted in our previous update.
  • The latest reversal came just above this tight confluence level as price hit an ascending trend line area, adding additional bullish weight from a technical analysis perspective.
  • Prior to this the price of gold was in a strong down trend recently; it remains to be seen whether the precious metal can hold above this support level going forward.  We will be monitoring the price action around this prior “support zone” to gain a directional bias going forward.

XAUUSD – – Daily Chart

gold technical analysis

Any news, opinion, analysis, price quote or any other information should be taken as general market commentary only and not as advice to trade on. Omissions and errors may occur.

Is Gold a Currency?

December 8, 2012 in Forex Articles

Much has been written and discussed about gold and its nature.

  • Is it a commodity?
  • Is it just a hedge against inflation?
  • Is it a currency?

From earliest times, gold has been valued for its lustre, durability and comparative rarity. The value of this metal in the eyes of men established its suitability as a means of monetary exchange, and for its use as a common denominator in barter deals in the earliest times, and later as coinage when organized markets developed. With rapid economic growth, it became inconvenient to transact coins, and currency notes came into being, each such note backed by gold.

Here is a picture of a 1928 currency note representing $1,000.

The inscription on the top left corner reads:

“Redeemable in gold on demand at the United States Treasury, or in gold or lawful money at any Federal Reserve Bank.”

This is an example of the gold standard, where paper currency is convertible into gold, and the total value of printed currency is backed up by equivalent reserves of gold.

After World War II, the Bretton Woods system of convertible currencies replaced the gold standard, and thereafter the medium of exchange became fiat currency instead of gold-backed paper money that was fully convertible into gold. Due to the pre-eminence of the American economy, and its trading reach across the globe, gradually the American Dollar became the most commonly accepted currency worldwide.

Was the gold standard lost?

Yes, and no.

Yes, because gold no longer served its purpose as an official store of wealth that backed the world’s money in circulation.

No, because regardless of the decision of global monetary authorities to delink it from currency, they could not delink it from value.

Gold, like centuries gone by, still commanded awe and respect from mankind as the ultimate store of wealth, in contrast to fiat currencies which had increasingly dubious value and fell by the day.

Yet, gold was something to be mined, obtained from the earth much like other metals and commodities. It also did not provide an earnings stream to the buyer, nor paid any interest, and instead cost money to hold and store. In these ways it was like a commodity. The difference was it had less use in worldwide consumption and manufacturing like the other commodities, and more as something given value by the perception of the buyer due to its rarity. So, it’s not a commodity? Let’s look at a chart of gold (the right price scale) compared to the CRB commodities index (the left price scale) over the past 10 years.

As you can see, compared to the orderly and steady rise of gold, the CRB index of commodities is much more volatile and all over the place. In fact, after mid-2008, the CRB has fallen from approx. 480 to currently 309. Gold, on the other hand, has risen from $800 to $1704 – a complete disconnect! It appears, therefore, that it would be incorrect to classify gold as a commodity.

Again, commodities tend to be far more correlated to inflation and if gold were truly a commodity, it should sync similarly with inflation. Not true, as the chart below of the Consumer Price Index (CPI) compared with gold will show.

Note the vast difference between the trends, they are almost inversely correlated. If gold were a commodity, or for that matter a hedge against inflation, the trends would move in tandem. That is not the case.

Then what makes gold tick? Here’s an instructive chart of the dollar index compared with gold.

From 1994 onwards, the dollar index and gold price are lock step in sync, only oppositely. Clearly the depreciating value of the dollar has had a profound effect on the value of gold, and in fact the two behave more like a currency pair. In my view, this is very convincing evidence that the innate nature of gold is that of a currency.

Put another way, though the economic powers-that-be officially delinked their now fiat currencies from gold, and did away with the onerous reserve requirements, they could not wish away a stark benchmark that the financial markets still hold up as a gauge of their fiat currencies – the price of gold relative to their currencies.

The gold standard is dead, long live the gold standard.


In July 2011, Republican Ron Paul asked Fed Chairman Ben Bernanke point blank, “Is gold money?”

Bernanke: “No. It’s a precious metal.”

On Paul’s reminder of the historical use of gold as money, Bernanke clarified, “It’s an asset. Would you say Treasury bills are money? I don’t think they’re money either but they’re a financial asset.”

‘Precious metal.’  ‘Financial asset.’ So much for truisms!





Gold Update WC 12th November

November 11, 2012 in Trading with Other Commodities

Gold Update WC 12th November

Gold Technical Analysis – Gold finished the week close to the $1730 per oz mark on Friday, after scaling to highs around $1738.71, a two-week high for the precious metal. A risk aversion tone dominated throug the week with the SPX (S&P 500 index which is often seen as a barometer for risk) experiencing its worst weekly percentage basis drop since June. The S&P 500 printed a decline of 2.4% over the week.

gold chart november 12thBroad based dollar strength (see our latest dollar index update) has been found this past week, which would often signal a decline for gold. However, gold bullion has recorded the first weekly basis gain since early October, and increased in value by over 3%.

Inflows into Gold ETFs have come in at over 10.5 tonnes over the last three trading days alone. Interest in gold exchange-traded funds has picked up recently as the ultra-loose monetary policy from central banks, with an associated debasement of currencies, remains a key focus for the investing masses; as does the fiscal cliff and European debt crisis.

gold technical analysis
Any news, opinion, analysis, price quote or any other information should be taken as general market commentary only and not as advice to trade on. Omissions and errors may occur. Be safe.

Gold Update For 9th November

November 9, 2012 in Trading with Other Commodities

Gold Update For 9th November

  • Gold is trading higher as a risk aversion theme dominates market sentiment and the so-called U.S. “fiscal cliff” remains a key factor.  Gold is up around 3.5% on the weekly basis.
  • Gold stored in ETP (exchange-traded products) registered around 2,596.106 metric tons, as of yesterday, according to recent data from Bloomberg.
  • Price is now consolidating recent gains around the 50% retrace level.  $1800 remains as the key upside potential resistance level in the longer term
See our latest Gold Analysis update and the XAU/USD Daily Chart below.

gold analysis news forecast outlook 2012-11

Gold Price At Two-Month Low Following NFP

November 3, 2012 in Trading with Other Commodities

Gold Price At Two-Month Low Following NFP

Gold is at a two-month low as broad based dollar strength was seen on Friday, the precious metal broke through the $1700 level after a stronger than anticipated NFP (US Non Farm Payroll) report.  This was the fourth weekly loss in a row for gold.

Gold Technical Analysis studies can be seen in the XAUUSD chart below.  The following daily time frame gold chart show the key levels we will be monitoring heading into next week. The 61.8% Fibonacci retrace is of particular interest, as it is aligned with previous resistance which could potentially see support if hit.

Gold Daily Chart – XAUUSD

price of gold analysis


Gold Tech/Sentiment Update – 25/10/12

October 25, 2012 in Trading with Other Commodities

Gold Tech/Sentiment Update – 25/10/12

  • Gold has continued its recent downside after finding interim resistance near the nine-month highs.  Gold prices have dropped over 5% during the previous 2 weeks.
  • Recent low gold prices might prove to be attractive for potential new buyers.  India’s Diwali festival approaches with a possible increase in demand for the previous metal. 
  • From the technical perspective the $1700 per oz level and close 38.2% Fib ret might provide some kind of support.  It is also worth noting that the 61.8% level is aligned with previous resistance highs around $1630 should gold see a sustained drop in value.

Gold Analysis

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