Commodities | May 17 2012
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By Jonathan Barratt
Gold has just given back all the hard earned yards gained this year in only a few trading sessions. It is interesting to see the positive correlation between equity markets and gold play out and the negative correlation between the USD and gold become entrenched. At a time when economic turmoil and geopolitical issues are at their peak you would expect gold to be in demand, however it is being sold and the weight of sales coming from the ETF markets is weighing heavily on the price action.
This is something we talked about a while ago. The main question we have to ask ourselves is whether or not we give up on the bullish outlook we have had for a long time. We have put the bull trend on hold as we have broken significant support, however we are not yet ready to abandon out bullish rhetoric. It just goes on hold. The World Gold Council recently announced that in order for miners to remain profitable the gold price has to remain above US1300, with close to US200 to go for the price to reach this level you would have to think few miners are getting nervous and we can see a few projects slowly going on hold. If this is the case then we can expect the supply-demand story we have been talking about to become more of a reality, and this should help to support the dips.
With China and India now accounting for 55% of the market, the demand for the metal simply cannot evaporate over night. We continue to see this current move as cleaning out stale longs. The trend higher for gold should recommence once we get back on the road to recovery.
As we mentioned last week, we support the price eventually moving higher and wait for confirmation of a low before weighing back into the market. Our bullish call has been on hold for a while and we see no change in this at the moment.
Chart point:
Support for Gold comes in at US1520. This was the low trade in December 11. If this area fails to hold then US1470 is the next level with the real possibility that it can trade to a low of US1400. The market has broken significant support and as such we have to remain bearish. Momentum indicators are trading within the lower band. If we see a break above US1570 then an intermediate low may be in place.
Produced by Jonathan Barratt direct from the trading desks of Commodity Broking Services, Barratt's Bulletin provides expert analysis of commodity markets, global indices and foreign exchange movements. Click here to take a no obligation 21-day trial to Barratt's or to learn more visit www.barrattsbulletin.com. Content included in this article is not by association necessarily the view of FNArena (see our disclaimer).
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