Is Gold’s Floor at $1250 ?

January 29, 2014 | By | Reply More

Since the beginning of the year we have seen a series of four higher highs and with a very marginal exception, four higher lows.

Technically gold has been in an up trend since January,1st. starting from a low of $1198 an oz and reaching $1275 an oz until falling back to $1264 an oz at the New York open today.

If the price passes the $1275 mark before Friday then there would be a technical argument for further rises. In other words follow the trend – until the trend is broken!

$1238 the Next Support Level

Should the trend be broken then the next support level is around $1238, below that we could see $1200 an oz. in double quick time. Going back to the down trend line starting mid September 2013 would see gold back to the $1200 level.

Based on technical analysis alone a reversion below $1250 is a very real threat in the short term. It would be unwise on its performance to date to call gold’s floor at $1250.

To Taper or not to Taper – That is the Question

What do the fundamentals tell us? It is our opinion that, in the longer term, the outlook for a sharp rise to above $2000 an oz. remains as strong, if not stronger, than ever.

It is the short term outlook that is cause for concern. First off we have the “will she (M/s Yellen) taper or won’t she? Early days but by all accounts she is likely to follow the Bernanke line and attempt to ease back on QE while looking to see whether the real economy can cope.

This uncertainty is showing up in the performance of the stock market, its sharp fall in line with the doubts surrounding Fed policy. More taper equals lower stock prices, possibly causing liquidity problems in the investing world and that is never a good thing for the gold price.

The Madness of Raising Minimum Wages

Now we see sharp drops in the markets and currencies of the emerging countries coupled with rising interest rates which may have a serious impact on western stock markets.

President Obama’s current target to raise minimum wages in companies engaged in government contracts is hardly designed to improve the US economy while real unemployment is stagnant at too high a level. Lets not think of the eventual cost that will fall upon taxpayers.

Questions Surround the Chinese Economy

Closer to home is the Chinese new year of the horse. Whilst 2013 as a whole saw record imports of gold into China, the last two months of the year saw a significant drop.

The question is whether this was due to stock piling while prices were low in anticipation of the expected surge in sales during the holiday period or whether it is other factors coming to the surface in the Chinese economy that are playing their part, remains to be seen.

Stay Out of the Gold Market for Three Weeks

For our part we are likely to stay out of the market for at least the next three weeks in the expectation that neither the fundamentals or the technicals are likely to give us any direction.

The market is thin, and any news, contrary or otherwise, is likely to whipsaw the price with the overall short term trend in the lap of the gods. You would have to find braver or smarter investors and speculators than us to call gold’s floor at $1250.

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Category: Gold

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