Seven Days Ahead offer financial and commodity market forecasting, technical trading analysis, forex forecasting service, stock market trading recommendations, guides and strategies in the UK.Sign up now

We are still sellers of Gold

22 September 2008

The Technical Trader’s view:


The market has bounced better from the powerful support at $732.

But there is impressive resistance above the market at $848 and above.

And the failure of the $873 very long term prior High support from 1980 is still vitally significant.

The Dec contract shows the wildness of the price action.

Dec contract traders will be unconvinced by the bullishness short-term unless the market can get above and stay above the horizontals $858-$868.

Dealers will have to make their own minds about stops losses in conditions of such volatility.

Watch the price action carefully but we are looking to get short again.

The Macro Trader’s view
The rally in gold which occurred earlier this week was a natural and rational reaction to great uncertainty in not only the equity markets but also the financial system in general. Many Banks were finding their very survival under threat following the collapse of Lehman brothers, and not only in the US, but in the UK too.

Traders had lost confidence in the Banking industry in general, as it was still impossible to know who was holding non-performing assets, leading to an almost complete freeze in money market inter-Bank lending. Thus the Dollar retraced a good deal of its recent gains.

The gold rally was gold fulfilling its role as hedge of last resort.

But overnight the US Treasury announced it was working on a plan to create a special Government sponsored vehicle to house the “toxic” securities, thus removing the sense of fear from the market which has lasted for over a year and impeded the normal flow of credit throughout the US and UK economies.

The rally underway in stocks now is a rational short term move as short selling of financial stocks is now banned and positions need to be covered. Moreover the optimism generated by the rescue plan announcement, though still not finalized, would be most felt in both equity and wholesale lending markets.

This reduces the sense of crisis and reduces the need for safe haven trades, so why the rally in gold today?

Possibly the focus of attention has shifted back to inflation, in the belief that think that the economy will be quickly fixed.

If so, that is wrong. The economy globally remains weakened and cleaning out bad assets from Bank’s balance sheets won’t fix it over night. Lending standards have been dramatically tightened, not just here in the UK but elsewhere so the credit flow to consumers and home buyers will not quickly return to pre-crisis levels.

Additionally, people have lost jobs in large numbers just this week, with the HBOS-Lloyds deal in the UK likely to result in many thousands out of work and in the US Lehman s demise will also see several thousand highly- paid jobs lost.

In technology Hewlett-Packard has this week announced the loss of 25,000 jobs.

Alternatively, there may be large speculative/safe haven trades are being unwound and the markets are in a state of heightened volatility.

In which case it may take a few days/weeks for a clearer picture to emerge and underlying fundamentals to re-assert, but we think they will.

In either case the Gold market is a sell. But timing as ever is crucial and so is sentiment. We will be watching the market carefully to finesse our timing.

Mark Sturdy
John Lewis
Seven Days Ahead

Receive three Market Updates fully-illustrated with charts each week for one month FREE

Next story:
Watch the US futures strip – it’s telling us something...

Previous story:
Trading Oil lower

< Back to menu

Financial Market Forecasting | Bonds Technical Trading Analysis | Commodity Specialist Guide | Daily Indices Guide | Technical Trading Guide UK |
Site Map | SEO Services | We're listed in the UK Business Directory