Technicals | Jul 25 2011
Gold Poised To Push Higher As Flight-To-Safety Gathers Pace
By David Song, Currency Analyst
– Crude Oil, Gold Refocus on Global Economic Growth Concerns
– Traders Unsure of Dollar Safe Haven Status Under Deficit Focus
Gold surged to a fresh record-high of US$1610.70/oz and prices for the bullion may push higher in the week ahead should the flight to safety gather pace. Indeed, market jitters are likely to fuel increased demands for gold as market participants seek an alternative to the greenback, and the heightening risk for a U.S. default may continue to dampen the appeal of the reserve currency as the government struggles to meet on common ground.
As the U.S. Treasury Department’s ability to tap the financial markets is set to expire on August 2, there will be increased pressures on Congress to increase the US$14.3T debt ceiling, and threats of a rating downgrade may materialize over the near-term even as top government officials expect lawmakers to strike a deal in addressing the impending debt crisis. Indeed, the far-reaching implications of a U.S. default could put the world financial system at risk, and bullish sentiment underling the bullion may gather pace in the following week as the fundamental outlook for the global economy remains clouded with high uncertainties. At the same time, the 2Q GDP report for the U.S. will also come into focus next week as the releases is expected to show a slowing recovery, and market participants may show a bearish dollar reaction to the outcome should it fall short of market expectations. However, the Fed’s Beige Book may undermine the market reaction to the growth report as we are likely to see the central bank continue to highlight the ongoing weakness within the real economy, and the slew of market moving data scheduled for the following week certainly sets up for more gold strength as fears surrounding the fundamental outlook impedes on market sentiment.
As a result, the short-term correction in gold is likely to be short-lived, and the bullion should resume its upward trend as prices end the week above US$1600/oz. In turn, buying dips may turn out to be a favorable strategy amongst market participants, and we are likely to see fresh record-high prices for the precious metal as it benefits from safe-haven flows.
The views expressed are not FNArena's (see our disclaimer).
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