To say that it has been volatile this week would be a gross understatement, but for gold traders in particular, Wednesday’s price action was certainly one for the record books.
The FED decision on Wednesday not to taper its bond buying program completely wrong footed the vast majority of market players, although why this should be I find rather perplexing for two reasons. First Ben Bernanke never actually said the taper would start in September, and second the poor NFP data earlier in the month would have been sufficient to cast doubt on any decision anyway.
For gold, which had been moving steadily lower since early September, Wednesday’s statement came as a welcome relief to gold bugs, with the precious metal surging from a low of $1291 per ounce to end the session at $1367, a gain of almost $80 per ounce on the day. After such a dramatic move it was no surprise to see some muted price action on Thursday, with a long legged doji candle which duly delivered a reversal in today’s trading session, with gold looking to end tonight’s trading session around the $1332 per ounce region.
Moving forward the question now is whether Wednesday’s bullish momentum can be maintained, and certainly from the subsequent reaction, gold still remains weak. The shooting star candle of late August defines the high at $1420 per ounce, and with the current price action testing the $1330 region of price support this is now a key level, and needs to build a platform here, to prevent gold falling further. On the horizon of course, there is potentially more bad news for gold bugs, should Angela Merkel fail to gain a working majority in the German elections. This would result in a potential surge in the US dollar, and consequent weakness for gold, assuming the inverse relationship holds firm, which was certainly the case this week. Longer term, the outlook for gold remains positive, as inflation comes to its aid, but before that, the metal has to contend with the tapering effect which is likely to be damaging in the short term. So Wednesday’s bright star may wain very quickly, and indeed already seems to have done as we come to the end of another trading week.
By Anna Coulling
Hi,Anna i want to invest in commodities,but i am beginner.If you can give me sometime(although i know its precious)will you please guide me,how to invest and what are factors should be considered during gold trade.
Thanks
Regards
M.Sohail Akram
Hi Muhammad – many thanks for your comments and I will do my best to help, but as you can appreciate this is a big subject and hard to answer in a few sentences, but here goes! First of all, I’m not sure from your comments whether you are looking to invest or simply speculate in gold/commodities. If you are looking to invest in gold, then there are many ways to do this, and perhaps the most common is to buy the physical metal, either in the form of gold bullion, such as ingots, teal bars or coins, or in the form of jewelry. There are also other ways to invest such as in numismatic gold coins, which have value both in terms of the metal itself, but also in terms of rarity ( rather like antiques!). If you are considering gold as a speculative trader, then there are several ways to trade gold. First, and perhaps most common is to trade in gold stocks, ( gold mining stocks for example) either short term speculative trading, or longer term on a buy and gold basis. Gold futures are also popular and the GC contract on the CME is one of the most widely traded. Whilst the contract is large, smaller micro contracts are now available which reduce the margin requirements with contracts such as the MGC. ETF’s are another common and popular way to speculate on the price of gold, and here the GLD is the most widely traded. Finally, gold is now increasingly becoming available through spread betting platforms and even on MT4 fx brokerage accounts, along with binary options, and fixed odds betting account. So many different ways to speculate and trade the price of gold. In terms of influencing factors, the US dollar is one as commodities general move inversely to the USD, and for gold, safe haven and inflationary hedging are key driving forces. In my book, A Three Dimensional Approach To Forex Trading I do explain commodities and gold in particular and all the influencing factors which drive the price, so you might like to take a look at this, as a possible starting point. I hope the above helps and as I’m sure you know, I do write about gold regularly here, so please do check back or subscribe to the RSS feed under ‘Anna on the Web’ for regular updates. All bets wishes and many thanks for your interest and I hope the above helps – kind regards Anna