Gold to Resume Advance Amid Debt Concerns, Middle East Tensions
Fundamental Forecast for Gold: Bullish
Gold extended its two week advance and now looks poised to push higher as global debt and inflation concerns continue to rattle the markets. At the same time, unrest in the Middle East is fueling demand in the yellow metal. As recent developments point to further gains in the bullion, traders should not rule out a move back towards the record high of $1432.5/oz.
This past week, it seemed as if gold overtook $1380 with ease as tensions in the Middle East deepened, while global inflationary pressures continue to make policy difficult in major economies. With regards to the former, following protests in Egypt, Iranian state TV said that warships were en route to the Suez Canal due to growing unrest in Bahrain Yemen. As of late, reports have shown that at least five people have been killed since the protests in Yemen which began on February 14th against Bahrain’s ruling Al Khalifa family. The troubles do not stop there; protests have now emerged in Algeria and Iran. Therefore, as tensions in the Middle East continue to gather pace, gold could witness further buying pressure as trader’s hedge against the declines in the other assets.
The advance in the bullion is also attributed to sovereign debt concerns in the 17 member euro area. As of late, the yield on Portuguese, Spanish, and Irish 10 year notes are up 3bp, 1bp, and 4bp respectively. In particular, the yield on Portugal’s 10 year notes stands at 7.239 percent, which marks the 10th consecutive session that the yield has held above 7 percent. As the troubled economy runs out of options, leaders are pushing EU leaders to adopt a new crisis measurement at its summit next month. Failure to meet market expectations will not only send the euro into a free fall, but will also lead gold to push higher.
Going forward, debt concerns in the Euro-Zone and tensions in the Middle East will likely remain in the spotlight and will continue to spur interest in gold next week as solutions are unlikely to arrive by the end of February. Taking a look at price action, technical developments in gold are painting a bullish picture for the yellow metal. The MACD has yet to reverse course after signaling for gains February 1st, while intraday charts remain supported by a rising trend line. So long as the bullish trends remain intact, upside risks remain.
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