All That Glitters Is Not Gold

Gold futures posted a one year high last week as gold bugs dived headlong into the shiny metal; in fact, last week was the best weekly gain in Gold since the crisis in 2008.

If we look at Gold priced in terms of Oil, the metal has never been more expensive according to Jim Reid of Deutsche Bank. Gold is now 44 times the price of Oil. “The previous high of 41 in 1892 has just been exceeded,” according to Reid. “For perspective, the ratio was at 6.6 in June 2008 and only 12 in May 2014. The long-term average is 15.5.”

What is driving this demand for Gold?

There may be a few things driving the demand for Gold:

  • Dropping equity markets. Global equities have dropped almost 20% according the to FT.
  • Negative interest rates.
  • Possible delay by the US Fed in raising interest rates.
  • Fears of deflation.
  • Mistrust in central banks not to debase their currencies.

The rally has also been supported by global buying of Gold ETFs. At least in the short term, Gold will probably see buying pressure due to its status as a ‘safe haven’ as risk aversion remains strong in these uncertain markets. However, any increases in interest rates and improvements in the global markets, could see the buyers cover their longs quickly.

The Technicals

We’ve seen a slump in Gold over the last year as traders shorted Gold amid fears of interest rate increases. The sentiment has changed in the last few months with fear of negative interest rates across the world dominating traders minds.

The chart below appeared in our blog earlier this year and shows a possible demand zone which we can see from the next chart has held.

Gold finds support and symetry

Gold finds support

 

gold is having a great year

Gold has climbed strongly this year

In addition to picking up buyers at the historic demand zone displayed above, we have also broken a key resistance level and are now trading outside of a descending trend line – indicating the change in sentiment for this market.

Gold has broken some resistance levels

A change in sentiment for Gold

Retests from above of the trend line and the broken support level may see the buyers reload their long positions on this market. We can see from the chart below that we have had impulsive looking price action of the last two weeks or so.  The recent high of 1190 might see some buying pressure and the 1130 price which has acted as previous demand may also be of interest to buyers.

Gold has been impulsive

Some possible demand zones

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Please note our disclaimer on all of this.

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