
What Mr.
Bernanke says in Congress is obviously important but a study of the big
picture brings the realisation that tapering, the term given to the winding
down of bond purchases that is designed to pump liquidity into the U.S.
economy, is definitely on the way. The Fed’s job now is to ensure that its
introduction and execution are orderly with respect to the markets. And the
fact of the matter is that the markets have been anything but orderly in the
wake of previous announcements and leaked stories about tapering that happened
around April and May last.
As we have
mentioned before, the U.S. dollar price of gold is a particularly good barometer of the state of the greenback,
and by extension the Forex market’s expectation for the ending of Quantitative
Easing. The chart above shows the precipitate fall in Gold that started in
April, (red block arrow on chart) which greatly accelerated what was already a
downward trend.
Emerging
markets, too, such as India ,
Mexico , and Brazil suffered
significantly when their local currencies made a rapid devaluation due to the
selling of local assets for US dollars in the expectation of the end of QE in
the U.S.A. India, in particular, was badly hit.
Chart courtesy of www.advfn.com
The
government there has never been keen on speculative trading in the Rupee, as is
common with Western currencies, but now there is a firm ban on any foreign
exchange involving the Indian currency that is not for legitimate business
purposes or travel.
With regard
to gold, and as Mr. Bernanke now seems to be attempting to undo some of the
selling exuberance that was unleashed at the start of the summer when
expectations were raised in regard to tapering, there is every expectation that
the gold chart at the top (XAUUSD, weekly) will make good use, from a Technical
Analysis point of view, of the retrace area between where the price is now and
the 200 period SMA on the weekly chart, which just happens to coincide rather
well with an extension of the trend line down to the point when selling accelerated.
The
dominant trend for gold against the U.S. dollar is still down. It is not part
of our strategy to go against the trend.
Nice I didn't know about this earlier thanks.
ReplyDelete