Gold Comes Off For The 7th Straight Day Today

There was another report in the market that private hedge fund money was exiting Gold (XAU/USD) and starting to invest in stocks.  This is unconfirmed and given the move from positive to negative in the stock market, it does not suggest an underlying bid in the equities.

Nevertheless, Gold (XAU/USD) after a sharp move higher from a low of $801.30 on January 15th to the high of $1006 on Feb 20th, has now strung 7 straight days of declines, bringing the price down to the midpoint of the move at the $903.65 area.  The low price today has been $905.10.

Gold, like the currency pairs, has both bullish and bearish fundamentals tugging at it.  On the bearish side, the dollar index has not been as high as it currently is since April 2006.  Generally, a higher dollar leads to lower Gold prices.  Another negative is there are so many asset losses that any gains in Gold may simply lead to liquidation to pay for the losses.  Finally, given the reluctance to spend from consumers, I cannot think that there is an underlying demand for jewelry .  Although a minor contributor to overall Gold demand, it is a demand.

On the bullish side, the flight to quality of Gold is an attraction as banking concerns around the globe, make holding currencies, stocks, bonds more risky and more volatile.  Also, with money available at record low rates, and fiscal policy in full swing, the stimulus could lead to inflation down the road.  Gold is thought of as an inflation hedge.  So that should benefit the metal.

The counterbalancing fundamentals suggest using technical analysis in trading XAU/USD would be more prudent.  From a short term perspective gold broke the 100 hour MA at the $982.89 level (see blue line in chart above) and has tested this key moving average on 2 separate occasions.

The price is now testing the 50% retracement level at the $903.65 (see daily chart at the start of the post) so we should see a correction from this level.  However, if the level should break, I would expect further selling to continue.

So keep an eye on the key technical levels, and leave the bullishness or bearishness to what the charts are saying.

Subscribe by RSS Subscribe by Email