Gold Provides an Opportunity

Gold had a correction yesterday which was inevitable as the price broke through 1263 the day before and went as far high as 1275 and hence, as usually it happens, there was a return back to the broken support at 1263. It happened yesterday due to general USD strength which began late in the euro session and has continued till now. The Euro has also weakened overnight due to the press briefing from Draghi and this has helped fuel the USD strength further and we can see that the USD has strengthened against all currencies though it has not been overwhelming as yet. For gold, the Chinese economy and the weak demand across the world has been weighing on the prices. But the more important factor has been the impending rate hike in the US which can happen anytime within the next few months and this would result in money being withdrawn from the stock markets and commodities like gold and silver and moving into the USD. This has basically spooked the gold buyers and with tepid demand, there is no impetus in the price and that is why we find that gold price has been at the lower ranges for long and even any kind of recovery has been met with strong selling.

We continue to wait for the price to reach 1300 and we will be watching the price action there to see if the momentum is enough to carry the price further on or whether the price will drop back into the range between 1250-1300.

In the meantime, the oil prices continue to consolidate in the low 50s as the market awaits more data and events to evaluate the effect of the oil production cut that has been promised by the oil producers. The OPEC producers had promised a cut in production and had also promised to convince non-OPEC producers on cutting their production as well but so far, the cut has not been significant and there have been some disagreements on how much needs to be cut by each producers. What has helped in keeping the oil prices buoyant has been these cuts and also the large drop in oil inventory in the US. As we have been saying for the past few days, the wall between 52 and 53 needs to be broken clearly for any further progress in the oil price and until then , we can expect some more consolidation below this price.

Silver followed gold as it could not break through the resistance at 17.8 and with growing USD strength across the board, it fell below to 17.5. It has basically disconnected itself from the gold price for the past couple of days and it remains to be seen whether the silver price will join in sync with the gold price on the next leg up.