Gold remains pressured despite weak dollar
James Chen April 5, 2016 2:05 AM
<p>Gold continued to be weighed down along with other major commodities on Monday despite persisting weakness in the US dollar and lowered expectations for further […]</p>
Gold continued to be weighed down along with other major commodities on Monday despite persisting weakness in the US dollar and lowered expectations for further Fed rate hikes.
Since a 13-month high around $1280 was reached just over three weeks ago in mid-March, the price of gold has fallen in a series of lower highs and lower lows. This steady retreat has occurred even as the US dollar has also steadily lost ground during the same period due to progressively diminishing anticipation of additional US monetary policy tightening in the near-term. Since gold is denominated in dollars and is a non-interest-bearing asset, conventional wisdom would suggest the opposite – low interest rates and a falling dollar should lead to a boost for gold.
However, another characteristic of gold – that it is considered a safe haven asset in times of market turmoil and volatility – has helped to place some pressure on gold prices for the past several weeks. Specifically, US stock markets have been in a prolonged rally, sharply reversing the heavy losses incurred during the early part of the year. This has helped to decrease the attractiveness of gold as a safe haven.
Technically, during the course of gold’s decline within the past three weeks, price has broken down below several factors that have helped define its recent steep uptrend. These include both an uptrend line extending back to January lows as well as the key 50-day moving average.
If gold has indeed formed an intermediate top, any continued strength in equity markets could lead to a further loss in value for the precious metal. In this event, the next major target below the $1200 psychological level is at key $1190 support. With any continued downside momentum, further bearish support targets reside at $1170, followed by $1140, where the 200-day moving average is currently situated.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.