Commodities | Aug 29 2013
By Jonathan Barratt
As we have already seen a 20% rally in gold from the lows of US1180 we have to assume, based on a technical footing, that the bull market is back with us. Does the fundamental picture also support this? The current fundamental picture for gold really could not be better. Physical demand for the metal remains robust, geopolitical events in the Middle East are supportive and up-ticks in inflation in emerging markets are creating unsuppressed demand for the commodity. We have just reached record highs for gold in rupee in India. Further, if the Fed continues to keep stimulus up to the market due to weaker economic conditions ahead then the USD will put in a weak performance, which by default will support gold.
Why would the Fed continue its stimulus program? We feel that it really has no choice. The reason for this is the fact the US Congress, when it went on summer break, failed to solve automatic spending cuts known as “sequestration”. The “sequester” throughout 2013, many believe, has been responsible for holding back an economic recovery. Sequestration is a term used for automatic spending cuts in US federal outlays. Many of the automatic cuts are due to come into play after the summer break and many more are due in 2014. So it may be an uphill battle for the Fed and keeping the stimulus up longer than expected may be justified. Whilst this occurs the USD may be weak, thus supporting the gold market.
We continue to be long the metal and have some excellent positions in play. Our new target is US1475 and then US1540.
Chart Point – Gold:
We continue to be bullish as, as mentioned, we are back in bull trend. Our positions are showing good returns. And we look to increase stops. The next level of resistance is US1430 then US1475. Momentum indicators present a concern. However they can be discounted due to the fundamental picture.
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Edited by Jonathan Barratt, Barratt's Bulletin is a weekly subscription newsletter that 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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