Gold is particularly
sensitive to the words that emanate from the Federal Open Market Committee
(FOMC) in the US .
The precious metal has been on a long-term downtrend that started when the
tapering (the gradual reduction and eventual elimination) of Quantitative
Easing (QE) was first mooted by the former Fed chairman, Ben Bernanke, back in
October of 2012. While this trend has been punctuated by periods of retracement
and ranging, we are not in favour of going long (buying) gold at all under the
present circumstances.
We currently hold a short
position in XAUUSD, the gold spot market contract that we trade from time to
time.
After the last FOMC meeting
the comments made by Janet Yellen, the new chair, were interpreted by the
market to be broadly hawkish. That is to say, she and her colleagues on the
committee were judged to have moved to a position where they are expected to
tighten monetary policy somewhat sooner than had previously been thought. Apart
from the continued tapering of QE, this also takes into account the possibility
of raising core interest rates in the mid-term, when interest rate rises in the
US
have up to now been totally off the agenda since the start of the Global
Financial Crisis, which came to a head in 2008.
All of this is calculated to
cause a fall in the price of gold.
That is the fundamental side
of the analysis of gold. Technically, the spot market contract has just
completed another week where the closing price is lower than that of the
opening of the previous week, when that was an up-week. This is known as a
bearish engulfing candle. As can be seen from the chart above, this pattern
often presages a period where price will move in the direction of the candle
that does the engulfing. This could be important for no other reason than that
such patterns are observed and acted upon by a great many traders around the
world.
Chinese manufacturing index disappoints – again
The HSBC Flash Purchasing
Managers’ Index (PMI) for March was announced earlier this morning (GMT) and
has come in lower than expected. This is the fourth month in a row in which it
has been both below expectations and also at a level that indicates
contraction in manufacturing.
However, the currency markets
have reacted very calmly to the news, with the Aussie dollar actually rising in
the aftermath. The Australian currency had been very sensitive to Chinese
economic news, as China
is a major user of Australian exports. The US dollar is also strengthening
against most other counterparts, which would seem to indicate that a Chinese
economic slowdown is becoming priced into the markets and is no longer seen as
a threat to the world economy.
The global economic situation
would appear to be dominated now by developments in the USA , where the
Federal Reserve has seemingly convinced market participants that things are, at
last, genuinely on the rise.
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