Gold is on a tear since I warned that negative price action was waning on January 6 (here). Gold has been able to overtake the $1,240 per toz. hump and chug along on global growth concerns. The IMF, just among the bunch, lowered the outlook for growth prospects; and the second largest economy – China – is pulling back, down to the slowest pace of growth since 1990. Gold remains a safe haven.
Traders are shocked the yellow metal has been able to rally like it has. They often point to technicals or the US dollar, but there is one thing that trumps all of that – trader pyschology. There is a psychological connection to gold. It’s what the financial savvy want during times of uncertainty and what traders want to hedge their risk exposure.
Gold is “overbought” on the daily chart, but the weekly chart still offers room to move with the weekly RSI only at 60. The daily chart is, too, supporting further moves following a slight pullback. Price action since the beginning of the year has been able to break each key resistance level. Once it has closed above resistance, traders have testing the former resistance, now support, and gold has been able to bounce higher. $1,273 had been tested several times yesterday before moving through $1,290. I expect a test of minor support at $1,280, while $1,295 will be the next resistance hurdle.
If gold can close above $1,295 and handles the $1,300 psychological resistance, look for the “premier currency” to trade to $1,315 per toz. However, gold will likely see $1,280 (potentially revisit $1,273) on profit taking.
Gold is likely front running the potential for quantitative easing from the European Central Bank (ECB), but analysts are suspect when it comes to the size and structure of stimulus. The decision will be announced in two days by the ECB.
My call on Newmont Mining (NEM) has also produced gains of 13 percent (currently).
"second largest economy - China - is pulling back"
Something to consider, for every month oil stays below $50 that's an increase of 1% in annual GDP growth. I don't have the exact numbers for India, but I would think it's close to China's .
I don't base economic advancement on ETFs. It's based on trader sentiment at a given time and not necessarily representing reality. China can still fall lower, while Brazil being a buy.
My weekly chart has been great to me. Support where there's support, none where there isn't any lol. However, I'd like to see $40/42 before I look for long-term upside. There are still factors to consider, though.
jangseohee
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that is linear
CommoditiesTrader
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That purple dotted line is a longer standing trend currently at 42.17/BBL
CommoditiesTrader
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The idea that low oil is unambiguously good for everyone I think is a bit overstated. There are systemic risks involved. Plus, what does the price matter. China is known to hoard commodities (copper, for instance). Analysts assumed because China was stockpiling copper, economist growth was certain and that wasn't the case. We have seen the Chinese economy consistently weaken. The world economic engine is more complex than to say GDP is going up because oil is down.
I'm not against growth. Hell, if China grows - awesome! If the US grows - ever better. But I won't assume that is de facto because oil is down.
Chinese industrial production is literally half of what it was in 2011. Manufacturing is stagnating, according to PMI data wavering from 51/52 and high 40s. Fixed asset investment is also a fraction of what it was since 2011.
jangseohee
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I like macroeconomical fundamental.. but chart first :-)
CommoditiesTrader
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Lol, analyze fundamentally, trade technically. That's what my grandpapi also told me! Actually, he didn't, but it's what I go by lol.
Something to consider, for every month oil stays below $50 that's an increase of 1% in annual GDP growth. I don't have the exact numbers for India, but I would think it's close to China's .