Top Story

Gold: could precious metals bounce back?

Thanks to a generally stronger dollar amid heightened expectations of a faster tightening cycle from the Fed, market participants have apparently reduced their holdings in buck-denominated precious metals. At the time of this writing, gold and silver were both trading lower for the second consecutive day, extending their declines from last week. Gold was finding no support from a pause in the stock market rally either. But could the metals bounce back as we head into the second half of this week?

The dollar does appear a little overbought in the short-term outlook. A rate rise next week is basically priced in. That doesn’t mean the dollar should weaken, but equally one can argue that there is no reason for it move significantly further higher without a pause at the very least. The US jobs report on Friday poses a key risk to the dollar and in the event we see a surprisingly weak number then the odds for a rate increase may weaken significantly. Given that possibility, speculators may ease off the gas a little.

In addition to the impact of potential weakness in dollar, gold may find support in the event of a stock market correction. This could become a possibility if the US indices break below some significant support levels. On the S&P 500, for example, 2366/7 represents a key support area in that it was the last resistance prior to last Wednesday’s big upsurge. If this level were to break down decisively, it may trigger profit-taking and short selling response from market participants. This could in turn boost the appetite for perceived safe haven assets such as gold, silver and yen. The resulting weakness in the USD/JPY may weigh on the Dollar Index, which in turn could support dollar-denominated precious metals even further.

Well, that is all good in theory, in reality it may not pan out that way. Nevertheless it is a possibility and we shouldn’t fixate on the idea that gold and silver will simply fall further because of what’s happened since last week. That being said, gold is yet to show any signs of support and for now at least the path of least resistance remains to the downside. Thus, it appears likely that the metal may drop to test the $1200 level again in the coming days, provided that intermediate support at $1217/20 area gives way. This level was being tested at the time of this writing. 

Source: eSignal and

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.