Inside the Crucible by Adam Van Sambeek
Last Friday’s better than expected US jobs data was the catalyst to finally push gold out of its narrow trading range. Gold prices broke lower, triggering sell stops below $1180 support, as the upbeat data increased the likelihood the Federal Reserve will raise interest rates in the near term. Given that US rate rises and a strong dollar have been on the agenda a long time, Iâ€™m surprised by the extent of gold’s reaction, especially as the downward spirals in many currencies could well create risks of their own.
Some market observers looked to China to push gold prices back towards the key psychological level of $1,200, demand has so far been unimpressive, raising concerns that prices have further to fall. Iâ€™m imagining that this recent sharp drop in Gold is more technically driven rather than outright negative fundamentals. Although I too wouldnâ€™t rush into Gold here as the charts look damaged, with a possibility we still test $1130. Call me a contrarian, but now seems the ideal time to obtain some low cost exposure to the upside. June Gold Call Options are my preferred method. Limit risk (premium) with unlimited upside potential.
Not all is rosy out there, the US equities have tumbled in the last few days, while the market seems to have ignored news that the ECB has just rolled out a 60-billion euro-per month quantitative easing programme in a bid to prop up its ailing economy. Remember, a lot still depends on the Federal Reserve actually moving interest rates. A major fall in the share market may cause the Fed to hold off, while USD strength could keep inflation so low that the Fed waits even longer before they raise rates.