Thursday, 28 June 2012

Is Gold Getting Ready For An Medium Term Downtrend?

The last few months have been very eventful for a precious metals traders, especially Gold. The metal has been moving mainly as a hedge against economic turbulence in the Euro Zone. So it is fairly surprising that Gold has not been very volatile in the wave of adverse news of bond yields in Spain and Italy touching record highs (close to 7%) and talk of some countries forced to leave the Euro Zone.
In case you are starting to wonder why this is so, the answer seems to be the economic data coming out of the USA coupled with the price of Nymex Crude. We all know that gold historically has been invested as a hedge against inflation and looks like the market is telling us that we are heading for a bout of stagflation.

The threat of inflation rising has reduced considering that Nymex crude prices have been trading near 80$ to 85$ zone against levels of 105-110$ plus in the previous months. The US job data has been disappointing with NFP numbers falling to around 70k per month.(though the jury is out if these numbers are an aberration).
Furthermore, the US Fed has opted for an extension of Operation Twist by buying up securities up to 287 USD Billion instead of QE3 which deflated the Gold Bulls who were hoping that the extra liquidity will be of great help.

Not surprisingly the technical charts also indicate suggest that the bullish momentum has started to wane. The 50 day MA has moved below the 200 day MA signifying a medium term bearish reversal (also called a 'dead cross' in technical parlance).
Charts courtesy of stockcharts.com
(click to enlarge)
We will review the outlook for Gold again in the coming months. Thanks for tuning in!
Mohan Raghav
CEO, Financial Markets Algorithms
Web: www.financialmarketsalgorithms.com
blog:fmatechnicals.blogspot.com/
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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