Weekly XULF Report
A series of good economic data from the US caused gold to drop even more last week opening at $1299.64 and closing down $67 at $1232.97. It was always going to be an interesting week with market participants eagerly awaiting data that could materialise Ben Bernanke’s intentions stated at the FOMC press conference the previous week. The Fed Chairman has expressed the plan to begin tapering down the bond buying within a few months if data continues to paint a picture of a strengthening economy and last week delivered a set of strong data spanning across housing, consumer confidence, spending, jobs and durable goods bringing that plan closer to action. Stocks and Treasuries have declined since the FOMC conference on 19th June but gold has been hurt the most as the yellow metal’s fragile position is being compounded by low inflation and may have further to drop according to its correlation to the CPI figure. The gold to CPI ratio historical average is 3.4 to 1 however the current ratio is 5.3 to 1 meaning it is still overvalued and that there could be further declines to come.
Traders looking to dip their toe for a bounce will be motivated by gold having a fight back Friday and completing a bullish engulfing candlestick. There are reports that gold miners are cutting back on production with the price at these lower levels which should help gold to some extent in the short term. This morning the Stochastic and the RSI have generated buy signals with is more evidence we could see a bounce.
The 4 hour chart is an interesting timeframe to analyse given gold’s technical situation and apologies for the chart looking confusing but I’m using the Ichimoku indicator that consists of a few different parts. The Ichimoku indicator has recently signalled a buy by crossing the blue Kijun Sen line from beneath which acts in a similar way to a moving average. Since the crossover this morning there has been a spate of volatility but now price has penetrated we could see further inclines. A feasible long target is the 38.2% Fibonacci retracement at $1261 or until price interacts with the Ichimoku cloud. Before risking a buy it would be prudent to watch how the latest 4 hour candlestick prints for signs of whether price will continue the bounce or resume its bearish trend. The main events this week fall later in the week and are the Bank of Japan press conference where Governor Kuroda will be speaking and the ECB press conference on Thursday followed by the all-important US Non-Farms on Friday. Economic data is being even more scrutinized than usual now the Fed’s intentions are quite clear therefore we could have a volatile and exciting week for gold.
