The gold could reside nearby 1390$ after several tries yesterday to get over 1400$ level after it had been under strong pressure following breaking of its previous supporting level at 1523$. It was well-known to almost all market participants that this characteristic of the gold will be done in the case of breaking this critical level which could contain its falling more than once since getting over it on 8th July 2011.
Technically by a bold look before the breaking you can easily place your stop loss order just below that level or even if you are out of the market you can put your selling order floating below it and if there is an option barrier to be considered you can find a better one than it before its breaking. So, it has falling aggressively to 1321$ before having the ability to rebound to this current level just below 1400$
So, the technical issue could not be ignored when we want to talk about what has happened to the gold and it can come in front of the fundamental issue this time by the special volatile behavior it has taken.
But when we talk about the fundamental issue, you can find before the breaking of 1523$ that there was continuous rising in the equities market since the beginning of the year after avoiding the fiscal cliff in the beginning of the year and this has unwounded money out from the safe haven stance on the better outlook the stocks and assets markets could have.
This view has been maintained several times by the Fed making the safe haven stance less attractive while the US housing market are growing in solider way this year and equities markets are surpassing the levels before the credit crisis.
Ben Bernanke has said it clearly in his semiannual testimony in front of the senate that the stocks are not in yet in a bubble and they are not over valued on the current earnings outlook and the Fed’s accommodative stance.
This policy which is still looking in the phase of pushing forward for carrying risk at least to the Fed’s monetary policies maker Governors could drive the investors to put the inflation upside risks aside and get involved in riskier positions than holding the gold in a hedge against it as unemployment rate is getting down and we are still away from the 2.5% yearly level of yearly inflation which can trigger staving off of the QE policy which is also weighing down on the greenback and the exit of it means normally direct positive effect on the greenback and the opposite for the gold.
The risk aversion property of the gold has been also obviously taken from it a long time ago in favor of the low yielding currencies such as the greenback and the Japanese yen to be asked better and before the gold in the case of avoiding risk.
But with the current tendency for carrying risk which has been fueled too by the Japanese ultra stimulating financial and monetary stance with Shinzo Abe, the gold has become in a worse place.
So, holding the gold at these circumstances was the risky position as the pressures have started to come on it from several sides with no serious inflation pressure even the Korean issue did not add to it new buying and this was a clear sign to the markets experts that the gold is really heavy.
So, by God’s will, the fear of general commodities prices falling following the gold is looking limited comparing with the precious ones such as the silver which tracked its way of falling.
FX Market Strategist
Walid Salah El Din
Mob: +20 12 2465 9143
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