30th August - Gold Underpinned
04 September 2012
TECHNICALS:
WEEKLY CHART
The market has bounced off the Prior High 1577.40 three times.
It can’t get beneath that powerful support level.
The latest bounce is up as far at the falling diagonal resistance at 1670.
(Note well the coincidence of resistance at that level from the Fibonacci. The market may struggle to get through there. But once through will be a good buy immediately.
DAILY CHART
The bounce in the market through the successive Prior highs1605-1644 has created a band of support which will be good in the near term.
Buyer will surely creep in as the market retraces.
So the market is supported in both the short and medium-term.
Well set to take out the diagonal/fibonacci resistance at 1677.50.
FUNDAMENTALS:
After a long bull run, gold has endured what we believe to be a long correction lasting several months and what others have said is likely the end of the bullish trend.
The reasons frequently deployed to support the case for those arguing the end of the bull run have been the Dollar’s strength against the Euro and a lack of inflation in any of the major economies.
But we have argued the case that gold is merely correcting. Our argument was based around the inability of the major economies to stage a convincing and vigorous recovery which spawned the current and as yet unresolved Euro zone sovereign debt crisis. We think that will ultimately drive investors back towards the safe haven of gold.
Policy makers have frequently voiced their concerns about the negative impact the debt crisis is having on the global economy. Apart from the Eurozone periphery which is trapped in a downward spiral of austerity and recession, the UK as the Eurozones largest trading partner, is also in recession.
The Chinese economy too is suffering a slowdown prompting the authorities there to ease policy and launch a massive fiscal stimulus. In the US, the economy has been slowing for months, but the Fed has only just recognised that fact and changed its assessment from a mid year slowdown to something more worrying, and in the words of the recent FOMC minutes, requiring an urgent policy response.
Moreover the authorities in the US, UK and elsewhere are still worried that unless the debt crisis is resolved soon, weaker members could be forced out.
The fallout from a Euro zone breakup would be serious and even the US economy would not be immune. But although the Euro zone has so far stayed together, the long drawn-out nature of the crisis is still having a depressing effect on the Euro zone economy and globally.
In believing the Gold Bull run isn’t yet over, we are taking the view that the debt crisis in the Euro zone has yet further to run. Whether or not it will break up is difficult to say since much European political capital has been invested in keeping the Bloc together. But the route followed: austerity resulting in loss of GDP isn’t as yet solving the crisis. We doubt it will unless a policy to promote growth is agreed and adopted soon.
With the Fed changing its tone about the nature of the US slowdown and talking up the need for a further policy response, the Dollar has weakened. It will surely weaken further if on Friday, Bernanke echoes the sentiments of last week’s FOMC minutes.
That will re-instate one of the criteria for a gold rally: Dollar weakness.
Another criterion, inflation, is likely to remain absent. In fact, if the US economy cools much further, the talk could soon shift back towards concerns about deflation.
The other dynamic which is currently present and which will also support Gold is geopolitical – that is both the current crisis in Syria and the ongoing stand-off of the major powers with Iran.
Historically, Gold has rallied at times of international tension and Dollar weakness and both are now coming back into play. So, can gold rally? We judge it can.
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06th Sep - Sugar Near Long Term 76.4% Support Again 
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30th Aug - Modest EUR/JPY Rally Nears First Key Resistance Area