4th March - the persistence of Gold
07 March 2016
TECHNICALS:
MONTHLY Gold ETF chart CHART
The market has bounced of the clear support from the Prior High at 1030 in this ETF.
Day April 2016 futures chart
The short-term bullishness of the market is clear from the support from the Prior High , and the continuation Triangle which formed above that support – and which has now completed.
The minimum move is up to the Prior Highs 1301 and 1348 at least.
A test and break of those would really get the Gold bulls going.
FUNDAMENTALS:
After a prolonged period of mainly range-trading which coincided with recovery in the major economies and a strengthening of the Dollar, the past several weeks has seen gold discover a new lease of life. Why?
There are several reasons:
Of these factors we judge the US economy’s recent weakness stands out. As expectations of a US rate hike grew through the 2nd half of 2015 the US Dollar enjoyed a period of strength against the other major currencies and Gold seemed set for a prolonged period of weakness. But no sooner had the Fed delivered its much-heralded rate hike, US data abruptly cooled resulting in a weak Q4 GDP of only 1.0% annualised.
This surprise undermined the Dollar and re-invigorated Gold. Traders and investors began to question the Fed’s grip on the economy. Had policy makers acted in haste? They surely had had time to wait until the US economy was clearly on a firmer footing and not just enjoying what the Fed termed as a “moderate expansion”.
In response to the criticism and weaker data Fed officials have lined up over recent week’s to allay concerns by arguing that further rate hikes were always going to be data dependant and that the path towards more normal policy settings was always intended to be a slow gradual process.
Friday saw the release of US non-farm payroll, an important number for traders at anytime, but given the recent weakness it had assumed greater significance. In the event the number delivered mixed messages: the headline report was much stronger than expected, but wage growth was weaker and so too was hours worked, meaning productivity might be taking the strain.
The Dollar drifted lower on the number, but stocks remained buoyant, presumably because equity traders sense the Fed will have seen little in the data to encourage them to hike anytime soon.
So what does this mean for Gold?
Clearly there is a growing sense in markets that a new recession may be just around the corner. True the major economies have enjoyed varying degrees of economic recovery, but only as a result of monetary policy remaining at extremely lax levels. Gold bulls wonder what, if the global economy slips into recession anytime soon with policy already so relaxed, will the authorities be able to do?
Stocks may want to rally on no near term Fed rate hikes, even though that is a result of economic weakness, but that will not offer the Dollar long-term support. Given all the other global economic and geopolitical risks, investors are starting to see gold as an attractive hedge once more.
Next story:
1st March - the vulnerability of Cable 
Previous story:
18th February - World stock markets send conflicting signals