Commodities | Dec 05 2013
Well, the fall in the Gold market has been on our agenda over the last few weeks. It has broken significant support levels at US1270 then US1235 and looks soft with US1170 being the last bastion of support for the bulls. In the absence of any new news, it feels that Gold could be testing US1170 sooner rather than later. The weight of selling by ETFs, the slowdown in physical demand and talk of deflation emerging has weighed heavily on sentiment. However, renewed talk of tapering as a result of encouraging economic data is putting a new shine on the metal, and with it so far holding up around US1220 perhaps we can pay some credence to the effects that tapering will have on gold moving higher.
Economic stimulus and the Fed's QE liquidity drives have all seen equity markets higher. As result investors have been easing out of non-performing trades and into equities. Gold has been a dog by failing to pick up any gloss from the equity movement; the S+P during 2013 was up 30% whilst Gold was down 24%. As a result Gold ETF selling has been a significant feature of the market for some time. Gold backed ETFs dropped 7 tonnes last week to their lowest level since April 2010 and Silver backed ETFs dropped to their lowest levels since June. Although the selling has been heavy we do suggest that it will ease over the coming sessions as traders look to revisit the nuances associated with tapering. As talk increases regarding tapering, the concern of reduced liquidity and increased interest rates will hurt the performance of the equity market. As a result, people will look to exit equities. As traders exit positions alternate investments are needed. Although Gold may not attract too many more buyers, the change in sentiment in the equity market will see ETF sales slow done. The lack of ETF selling may just be enough to encourage players back to the market.
Given the importance of US1170 the market just may want to test it. However, we feel it will be short lived as we look for gains to occur as stimulus dries up over the coming quarter.
It is all in the bounce or lack thereof. Support is at US1200 then US1170. The bullish uptrend is once again tested at US1170. We wait and see how the market will react from here.
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