Weekly XULF Report 10 – 14 June 2013
Gold was having a steady performance last week until a better than expected US Non-Farms on Friday gave good reason for investors to ditch safe havens for riskier assets causing gold to erase all of its gains on Thursday to reach a two week low of $1378.80. For much of the week gold was hovering around the $1400 level until ECB President Mario Draghi’s comments triggered a spike to $1421 after he informed the markets that the economy should stabilize and recover during the course of the year and that further monetary stimulus was not at the forefront of policymakers’ minds. Investors bought the Euro and aggressively sold the dollar on the back of these comments. Gold’s gains were eradicated 24 hours later when the US Non-Farm data showed that despite the mixed set of data recently the US economy is creating more jobs raising the probability of stimulus tapering occurring before the latter parts of the year.
The biggest drag on gold at present is the anticipation of the Federal Reserve slowing down the bond purchases which will strengthen the dollar making gold more expensive for investors using other currencies. Contrary to popular opinion gold may hold its ground and be tough for the bears to control for the rest of the year. Gold has already priced in a significant chunk of this expectation by declining nearly 20% this year therefore it would be foolhardy to take further declines for granted when the Fed begins the slowdown. If the Fed cuts back too sharply we could see a strong equity correction and some losses for gold but as investors take a look at the bigger picture they may switch to safe haven assets amid the uncertainty generated by the removal of stimulus on such an unprecedented scale. In the other scenario if the Fed play it in a way that appeases investors this should result in lower volatility for both gold and equities which would regenerate some confidence in gold and be supportive for a good finish by the end of 2013.
Technically gold has been showing signs of a possible bounce back towards the long term bearish trendline over the past three weeks but last Friday’s drop means the weekly chart is now displaying two consecutive shooting stars. The 10, 20, 50 and 100 Moving Averages aligned in descending order illustrates the market is far away from any correction but the higher low on the RSI indicates the pace of the decline is diminishing. Bulls will have been watching for a break of the bearish trendline on the momentum indicator but unfortunately for them Friday’s performance looks as though the momentum indicator is now bouncing off its own trendline ready for another downward leg. So to summarise the outlook for gold it looks like there will be a descent during June but at a slowing rate. Although traders need to be mindful of gold’s resilience of late in face of bearish fundamentals which hints that the market may be ready for a correction towards the long term bearish trendline within the next few weeks.
We have an eventful week with various types of data scheduled including Japan’s monetary statement and press conference Tuesday which is likely to move USD/JPY. On Wednesday and Thursday Germany are concluding a constitutional ruling on the ECB’s monetary operations which will impact gold by moving the EUR/USD, Thursday reveals US Retail Sales for May and on Friday is the University of Michigan’s Consumer Sentiment survey. Trade carefully around these numbers by using stop losses or reducing exposure.
No comments:
Post a Comment