(As written on BTInvest, 22 September 2014. Click here to read from BTInvest.)
All else being equal, Gold prices move in the opposite direction to the US dollar.
Last week, Federal Reserve officials tapered another USD10 billion and raised interest-rate projections for 2015, even as the central bank maintained a pledge to keep rates low for a considerable time. The announcement caused a spike in the US dollar, with the EUR/USD dropping over 100 pips in the next few hours and the USD/JPY rising by the same amount as well.
The rise in the US dollar took its toll on Gold, with prices falling to nine -month lows, touching USD1,208.13 an ounce on Monday morning. Silver sank to a four-year low and platinum dropped to the lowest this year.
In the futures market, Gold for December delivery lost as much as 0.6 percent to USD1,208.80 on the Comex, the lowest price since January. The net-long position in futures and options fell for a fifth straight week, with speculators boosting short bets to the highest level since June this year. According to data from the US Commodity Futures Trading Commission (CFTC), the net-long position in gold declined 22 percent to 55,716 futures and options last week.
Short positions, or bets on a price decline, increased 18 percent last week to 69,243 contracts. Silver for immediate delivery tumbled as much as 2.7 percent to USD17.3491 an ounce, the lowest level since July 2010.
Even hedge funds are exiting from Gold as well. Since June, as much as USD6.7 billion has been erased from the value of exchange-traded funds backed by the metal. Holdings in the SPDR Gold Trust, the biggest gold-backed ETP, sank on 19th September to 776.44 metric tons, the least since December 2008.
Investors withdrew about 553 tons last year as gold slumped 28 percent, the most in more than three decades. The holdings are down 2.3 percent in September, heading for the biggest monthly drop since April. Worldwide ETP holdings fell 3.2 percent this year to 1,706.47 tons as of 18th September, the lowest since October 2009.
In 2013, bullion fell 28 percent to halt a 12-year rally as some investors lost faith in the metal as a store of value. Inflation expectations, measured by the five-year Treasury break-even rate, last week reached the lowest since December.
Although prices are down, the lower prices may help to spur physical demand for the metal. Sales of gold coins by the U.S. Mint reached 39,500 ounces so far in September, heading for the best month since June and topping August’s total by 58 percent.
According to the chief executive officer of the World Gold Council Aram Shishmanian, the expansion of trading hubs in Asia will help boost demand in China by 20 percent in three years. Last year, China overtook India as the biggest buyer of Gold and gave foreign investors direct access to its bullion market for the first time.
Top News This Week
Canada: Core Retail Sales m/m. Tuesday, 23rd September, 8.30pm.
I expect figures to come in at -0.1% (previous figure was 1.5%).
USA. New Home Sales. Wednesday, 24th September, 10pm.
I expect figures to come in above 427K (previous figure was 412K).
Short XAU/USD at 1225
On the H4 chart, XAU/USD has been on a downtrend for the last 6 weeks, dropping from a price of 1322 to 1208. The main reason for the fall is due to the Fed reducing stimulus and a likelihood that US interest rates may start to rise soon.
I expect a retracement on gold prices to happen soon, as the gold shorts take profit. We will go short once prices retrace to 1225. A 15 point stop loss is placed above the previous high and we will have two targets on this trade, exiting the first position at 1210 and the second one at 1195.
Entry Price = 1225
Stop Loss = 1240
1st Profit = 1210
2nd Profit = 1195
Mario Singh is the Director of Training and Education at FXPRIMUS, Asia’s fastest growing brokerage firm.