Bullish consolidation in making?
Gold completes back-and-forth mode at set strategic focus at 1110/1135-1235/1260 with 1255.20 to 1131.85 to 1238.20 since mid October. The trigger for fall is from USD strength (DXY up from 84.50 to 88.19) and risk-on equity rally (DJIA index up from 15855 to 17600) during this period. The up move thereafter is from valuation worries on equity & bond assets, shifting investor appetite from hot-to-hold equity and bonds to cheap-to-acquire Gold. What next?
The fortunes for Gold on the way forward is dependent on valuation of the USD, equity and bond assets. US 10Y Treasury yield at 1.90-2.15% is not a long-term hold when FED prepares for rate-hike in second half of 2015. Equity asset valuation is also seen stretched with no signs of growth revival; high dependence on liquidity for bullish momentum on equity is short term risk. The pain is already felt in DJIA index struggling to hold gains above 17350-17600 with sharp reversal from below 18000. While the pipe-line fundamental dynamics stay in favour Gold, there are mixed signals from the USD directional bias. Having said these, interest rate dynamics continue to stay in favour of the dollar. If DXY gets into bullish rhythm again post the shallow correction into 87.75-88.25 unwinding part of short sprint from 84.50 to 89.50, there would be minor pressure on the Gold.
All taken, combination of safe-haven appetite for Gold (as alternate to over-valued Bonds and Equities) and downside pressure from USD strength will set up positive bias (if not bullish) into the near/short term. The recent high of 1255.20 is at risk for extended gains beyond 1255-1270. Therfore, there is case for upward revision in trading range focus at 1185/1210-1285/1310 with bias into higher end in baby steps!
Moses Harding
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