Gold – Still A Seller

Gold bugs are enjoying some relief at the moment with the rally in gold back to U$1,424 an ounce, up from the low around $1,326. Unfortunately, the fundamentals remain the same, and the chart is now offering a potential sell entry level. It may be time to put those seatbelts back on.

Gold is different to other non-precious commodities. IMO the big driver of the sell off is the market pricing the end of US Federal Reserve stimulus programs – not the global growth outlook. This hasn’t changed in the last six trading days – in fact, lower than expected jobless claims on Friday night may have added to the argument.

Now, have a look at the chart:

Gold – Daily

20130422 gold

Note the retracement of the fall from just below $1,600. The rally so far brings us back to the 38.2% level at $1,428. Fibonacci retracements are not predictive of trend changes – they merely indicate levels to look for trend changes. However, my fundamental view combined with the easing of the RSI away from oversold levels has me looking at the following trade:

20130422 tkt

 

 

 

 

 

 

 

Gold vs G5 Stimulus (US, Japan, France, Germany, UK)

20130416 cb vs gold

About michaelmccarthycmc

Chief Market Strategist - CMC Markets and Stockbroking Regular on ABC, BBC, Bloomberg, Channel TEN, CNBC, SBS and SKY
This entry was posted in Commodity, Gold, Trading and tagged , , , . Bookmark the permalink.

6 Responses to Gold – Still A Seller

  1. Spike says:

    Interesting thinking/reading. Can you elaborate on the IMO for me please? What is it? Who is it? I’m trying to determine if you’re suggesting the Gold collapse was somewhat of an indirectly forced rally of the USD? It fits with the Currency Wars argument, and to a degree also the likely outlook for general asset appreciation.

    • Hi Spike – sorry to mislead – IMO = in my opinion.

      As an aside, I tend to disregard conspiracy theories in markets – No one is bigger than the market. Some players can influence the market for a short time, but this usually results in a “snap back”.

      The central point is that gold is the major beneficiary of the liquidity pumped into the global system – central bank mandates all have inflation at their core – meaning CBs will withdraw funds as economies improve. This draining of liquidity is the long term fundamental referred to above

      • Spike says:

        IMO: Ah…..roger that. Thanks Mike.

        I’m really interested to understand this stuff. Five things please…

        a/. Quote: “Gold is the major beneficiary of the liquidity pumped….” What the?
        Are you suggesting this is why Gold has been trending up since about 2000? A beneficiary perhaps…….tell me more please? I feel very stupid here!

        b/. How do you rationalise, an ‘anticipated’ fall in liquidity is what knocked Gold prices down last week, as a result of ‘anticipated’ recovery/inflation some time in the future?

        c/. It’s no ‘conspiracy theory’ that the markets are being manipulated, unless for example, you ignore the easing the CB’s are already doing – or as you did state above, you discredit any long term effect from it. Which is it please?

        d/. Do you not agree that this ongoing action creates a new reaction in the value of many currencies, affecting trade and sundry?

        e/. How have you come to ‘IMO’, why Gold was sold off, without knowing who sold it? If it is known, can you please tell me too. I’m still unknowing.

        I expect we may learn in time, that this is a big picture, global, currency play…

        Cheers,
        Spike.

      • Hi Spike,

        I’ve added a chart of Central Bank balance sheet expansion vs Gold to the original post –

        a couple of points

        – while this is a “visual correlation”, gold is clearly rising with the expansion. Gold touched a low in 2003, and the major expansion did’nt start until 2008, so its not the only factor in gold’s rise

        – in a global market like gold, I don’t care who is buying or selling. Not saying this is right or wrong, its just not a factor in my trading plan.

        – it may just be a matter of word choice, but Central Banks have a core responsibility to implement monetary policy. Its one of the factors in considering economic conditions – although this is unusual monetary policy, think its a bit strong to call it manipulation. Direct currency intervention may be a different matter….

  2. John says:

    Hi Michael – Since you posted the above setup, price has formed lower highs on shorter time frames. Does this strengthen you view of a set up at this point. I don’t have the fundamental background you can draw upon & pattern is everything for me.

    John

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