Non-Farm Disappoints, But Gold Still Ends The Week On A Low. So What’s Next For Gold?
Contributed by Nik Kalsi and Phil Carr
Gold fell 1.6% in less than two hours on Thursday, as monetary policy easing in Europe and China was shortly followed by a better-than-expected US jobs report on Friday. US June non-farm payrolls rose by 80,000 while the jobless rate unchanged at 8.2 per cent, official figures showed.
US employers hired at a dismal pace in June, raising pressure on the Federal Reserve to do more to boost the economy and further imperilling President Barack Obama's chances of re-election in November.
By Friday lunchtime in London, Gold in Dollars was down around $5 per ounce on the week, while the Gold Price in Euros was still showing a 1.9% weekly gain following the weakening of the Euro. Meanwhile Silver fell to $27.10 per ounce – a few cents below where it started the week.
The Gold & Silver Clubs technical analysis on MetaStock’s QuoteCenter shows Gold has been in a three month consolidation range of $1525 to $1640. Despite its flat performance in recent months, we believe it’s likely to rebound before the end of the year and here are three good reasons why...
Quantitative Easing
Last Thursday The Bank of England (BoE) confirmed it was to restart its asset purchase programme with a further £50 billion of quantitative easing (QE). To put that into perspective, that will take the total size of the UK programme to £375 billion. We believe the Federal Reserve will be next to boost the US economy and of course that will result in renewed buying interest in the shiny metal.
Central banks still buying gold
Central banks, the largest holders of gold, may expand reserves for the third year running, according to the World Gold Council.
As gold prices head for a 12th consecutive annual gain, the council forecasts that central banks may buy more this year than the purchases of 456 tons in 2011 as countries diversify their reserves.
We believe this makes absolute sense. The last thing that central banks want to hold is dollars. The most obvious thing for them to diversify into is dollar-denominated real assets and the easiest of these is gold.
Indian gold demand: A repeat of 2009?
Another reason why gold is in a consolidation period is due to news that the Indian economy, the biggest global consumer and importer of the commodity, is suffering, with the country registering its slowest quarterly growth of 5.3% in nine years in the first quarter this year.
In early 2009, when the Indian economy faltered and the rupee crumbled, demand all but disappeared. In the first quarter of that year, demand was just 24.2 tonnes, down 77% year-on-year, according to GFMS data. For the full year Indian gold consumption fell 19%.
Since March, gold sales to India have dropped between 50% and 60% year-on-year, with analysts forecasting Indian demand to fall between 20% and 30% over the full year.
However, traders should be aware that a downturn in Indian consumption is a purely cyclical phenomenon. In 2010, for example, when the Indian economy made a comeback, gold consumption soared 74% to a record high of 1,006 tonnes, according to GFMS estimates. And a similar rebound, later this year or in 2013, could be back on the cards.
Whilst we are still bullish on gold in the long-term, what’s our short-term outlook?
In the short-term The Gold & Silver Club is focused on potential sell short opportunities with both Gold and Silver. If we break the important support levels – $26 on Silver and $1525 on Gold, the momentum is likely to continue downward in the short-term.
If Silver breaks $26.00, we expect a big sell off with the price rapidly dropping to $25.00, $24.00, $23.00 or lower fast. In which case traders should be prepared with two things: one, the right trading strategy to profit from the downside momentum and two: a precise market data tool such as MetaStock’s QuoteCenter to give you the right information at the right time to make the right trading decision.
On the flipside, if the market continues to bounce and rally off the $26.00 support level this potentially could be a very profitable trade to the upside. This key level has not been breached in the last 12 months so is the pivotal level to watch.
Looking at gold – if we continue to bounce off and rally from the $1525 to $1535 support level then expect a great trade toward the upside. Again this key level has not been breached in the last 12 months so is the pivotal level to watch. On the reverse side, if gold breaks through $1525 prepare yourself for a major sell off with the potential of gold price hitting lows of $1500, $1485, $1450 or lower fast.
On both occasions be aware – The more times we test a support level, the likely it is to break. To sum things up, the outlook for gold and silver remains bullish for the medium and long term but is rather bearish for the short term. If you would like to receive free weekly Gold & Silver trading updates then sign up to The Gold & Silver Clubs newsletter at www.thegoldandsilverclub.com.
About Nik Kalsi and Phil Carr
Nik Kalsi and Phil Carr are recognised as leading authorities on gold and silver trading. They are the founders of thegoldandsilverclub.com and professional commodity traders.
Nik Kalsi
Nik has extensive knowledge of the financial markets and investment strategy. Prior to founding The Gold & Silver Club, he spent 5 years coaching professional fund managers and traders internationally for some of the world’s top tier hedge funds and investment banks. Through his journey across the world’s leading trade floors, Nik formed first hand relationships with successful traders – discovering the strategies, mindset and tools giving professional traders the definitive edge in any economy. Nik has written many articles on monetary economics. He is also a regular columnist for a number of financial publications and appears frequently on television.
Phil Carr
Phil is the co-founder and director of The Gold & Silver Club. He specialises in teaching people how to make money from trading one of the biggest financial markets in the world: Gold, Silver & Oil and has trained hundreds of individuals to become independent traders and successfully manage their own investment portfolio.
He has personally developed The Gold & Silver Club’s trademark investment strategies that have a proven track record of generating returns for traders.
Phil speaks at numerous trading seminars and workshops across the world sharing his expert knowledge with investors who have a passion and interest in trading Gold, Silver & Oil.
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