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GOLD: Just How Important is this Move?

GOLD: Just How Important is this Move?

2016-01-15 14:40:00
Kristian Kerr, Sr. Currency Strategist

Price & Time covers key technical themes daily and can be delivered to your inbox each morning by joining the distribution list: Price & Time

Talking Points

  • Gold holds last week’s breakout level
  • Weekly high back in focus

GOLD: Just How Important is this Move?

GOLD: Just How Important is this Move?

Gold looks to be at a critical near-term juncture. The breakout from the November/December base was successfully retested yesterday, but quick follow through over this week’s high around 1113 is really needed to further improve the near-term technical situation. Overall XAU/USD has not responded exceptionally well to the recent surge in vol, but it is still early days.

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All that said, it is not lost on me that the metal in other terms is starting behave very nicely. The gold/oil ratio, for instance, recently recorded its highest level in 70 years. Gold/Comm Bloc is also starting to act well. I mention all this because I have had a different take on the metal than most. These past few years I have viewed it more as a form of CDS against global central bank policy. In this context, it made all the sense in the world to me that metal was weak as there has been utmost confidence in the central banks and the policies they have pursued. Why buy insurance when you do not think you need it? In order to see gold truly change its situation I think the markets have to start doubting the omnipotence of central banking. The deflationary trend in commodity markets is a strong sign that the policies pursued these past few years by global authorities have not been as successful as some might have you believe. If this thinking becomes more mainstream, Gold should come back into favor. In USD terms, I have been looking for a potentially important low this year sometime around the start of the second quarter. This latest move higher has caught me a bit off guard, but only really throws a wrench into my cyclical thinking if the metal can overcome 1190 before then. A failure over the next couple of weeks followed by weakness under 1046 opens the way for a test under 1,000.

--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com

To contact Kristian, e-mail instructor@dailyfx.com. Follow me on Twitter @KKerrFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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