XULF Report
Gold got wrapped up in the broad scale sell-off yesterday triggered by the Bank of Japan unveiling no additional stimulus measures and concerns about the legality of the ECB’s OMT programme. The precious metal has been well known as a good hedge against inflation and currency devaluations hence a withdrawal of money supply tends to cause investors to move away and go back to currencies. If the German Court Ruling over the constitutionality of the ECB’s unlimited bond purchases pledge is concluded as illegal then this could unravel all of Mario Draghi’s resolute hard work to lower bond yields of highly indebted nations.
Gold got wrapped up in the broad scale sell-off yesterday triggered by the Bank of Japan unveiling no additional stimulus measures and concerns about the legality of the ECB’s OMT programme. The precious metal has been well known as a good hedge against inflation and currency devaluations hence a withdrawal of money supply tends to cause investors to move away and go back to currencies. If the German Court Ruling over the constitutionality of the ECB’s unlimited bond purchases pledge is concluded as illegal then this could unravel all of Mario Draghi’s resolute hard work to lower bond yields of highly indebted nations.
The ECB hasn’t needed to activate the bond buying of its Outright Monetary Transactions programme but the pledge to make unlimited purchases has instilled confidence in the Euro which could be eradicated if the pledge isn’t supported by law. This will weaken EUR/USD and put heavy pressure on gold. Conversely a success for the ECB should give investors more appetite for gold. The poor Chinese trade data at the weekend is also dampening the mood for gold after further evidence points to slowing growth from the metals second largest importer.
The 15 minute chart displays how price has recouped much of yesterday’s losses to find resistance at the bearish trendline that began forming on Monday. Given the general descent since Friday this pullback towards this bearish trend offers a good opportunity to short with a tight stop. Remember that the weekly chart strongly indicates with the two side-by-side shooting stars that the market will finish the week down therefore most factors are bearish in the short term. A break of this trendline may produce an incline of a few dollars but bear in mind we need fundamentals somewhat to deliver gains of any substance. If the ECB wins its court case that may be the impetus gold needs.
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