One of the big ideas of 2016: Gold.
Gold has witnessed spectacular rally from lows, as you can see in the chart below.
There were three big factors that supported Gold in this Bull run -
- Fear Money (Big sell off in January)
- Negative Interest rates in Japan
- Weakness in Dollar
Gold is priced in Dollars and hence any weakness in dollar directly benefits Gold prices. One of the reason - Dollar index has been weak - US Fed lowering their own forecasts for policy tightening during 2016 from four interest rate increases to just two rates hikes. But that might change
— Yahoo Finance (@YahooFinance) March 23, 2016
Philadelphia Fed President Patrick Harker has now come out in open and said that the US should consider raising rates as soon as next month. There are 4 US Fed members who are openly advocating rate hikes. This is bound to strengthen dollar index and might impact Gold. Also, remember Gold is structurally in a downtrend. This is a weekly chart
I did warn against Gold then - in April 2013 - when Gold broke down
Is Gold about to breakdown 18 month support? http://t.co/gAuDHDU574
— Deepak Singh (@smarket) April 10, 2013
— Deepak Singh (@smarket) April 15, 2013
A surprise rate hike by Fed can puncture the Gold bull run because remember Gold does not offer any yield. The last thing Gold bulls want to see: Higher interest rates and a strong dollar. Having said that - Gold now has a very solid support at $1050 and on any sell off this time - there will be people buying the dips.
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Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers