Having bottomed out in recent times, gold could be in the frame for a bit of a comeback, according to a recent posting by Justin Pugsley, Markets Analyst at leading FX broker and platform provider MahiFX, who adds that a rally could result if the increasingly unstable geopolitical environment gets any more so.
There are several factors in gold’s favour, one being that the market has been steadily recovering from lows seen in June and December 2013. This has been happening against a backdrop that should be negative for gold, namely the scaling down of the Fed’s QE programme, which may be completely done by October this year. Secondly, gold has to a large extent dropped off the radar, and this is often a positive sign for a commodity despite apparent investor apathy.
Aside from these factors, the main thing that could drive gold upwards is the increasingly tense geopolitical situation, with countries such as Russia, Iran and China keen to fill any perceived power vacuum left by a the Obama administration’s increasingly ‘hands off’ approach to world affairs. In addition, the messy aftermath of the Arab Spring seems to be causing no end of political instability and violence.
All this could, if the situation deteriorates, negatively affect the global economy, sending stock markets into a tailspin, and this could create another investor gold-rush in an effort to preserve wealth. Some gold bulls even anticipate a return to QE if the US economy weakens as a result, which would set the gold market on another massive rally. That being said, as things stand it’s unlikely that the Fed will resume QE activities.
In June 2014, Gold hit a low of around $1,180 troy/oz, nearly as low as the recent lowest low in December 2013, which market the nadir of a bear market that started in September 2011 when Gold hit all-time highs at the end of a 12-year rally. However, in the context of this wider time frame the market is still bullish.
Ever since June 2013, the market has been in a pattern of consolidation, seems to have stopped falling, and could even be on the way back up. The key resistance levels to look out for include $1,392 and in order to break out of the current consolidation pattern it would need to clear $1,435.
Long-term Fibonacci levels in this market include the 38.2% retracement level at $1,463 and the 50% at $1,550, and these could prove highly influential for the gold market if they are broken. However, it is likely that the gold market will otherwise stay range-bound for the next six to twelve months or so.
MahiFX is headed by David Cooney, former global co-head of currency options and e-FX trading at Barclays Capital and responsible for the award winning e-commerce platform BARX and Susan Cooney, former head of e-FX Institutional Sales in Europe for Barclays Capital. Operating as a market maker, MahiFX provides traders direct access to institutional level execution speeds and spreads through its proprietary-built fully automated pricing and risk management technology, lowering the cost of retail forex trading.