In the early hours of today, gold continued its first major correction since the all-time highs seen at the start of the week. The drop off in the price, and the slow and steady pull back to the current $1,850 range does show that there is a lot of strength left in this bull run. Profit taking over this next week should keep $1,900 as a very large and significant resistance level, but also the fear and uncertainty in the market will indicate that a support level in line with the 10-day moving average roughly at $1810 will be likely. Plus the fact that there is still a lot of people looking to jump into the market on any price dips.
To get out of this range we would have to see new news. A lot of eyes (and ears) will be focused on the upcoming Jackson Hole Symposium that will take place this Friday, the highlight will be the speech given by Ben Bernanke where he “may” confirm more quantitative easing (as was hinted at from his 2010 Jackson Hole speech). Just the confirmation of a strong policy (or almost any policy) would be a positive sign for the market and might ease the need for investors to move into safe havens such as gold.
On Thursday there is the dreaded U.S. Jobless Claims, where it seems traders simply hit the buy or sell buttons as soon as they see a red or green numbers (dollar bad = gold is good / dollar good = gold is bad).
Other credit downgrades will also have some effect, such as Moody's downgrade of Japan to Aa3, and the fact that the United States is still seen as being in danger of further downgrades..
However, one must never underestimate the Chinese and Indian demand for gold, and with the Indian wedding season starting in September (which is a strong factor in boosting the gold price every September) we should be seeing any downwards dips in gold being pounced upon by hordes of keen buyers.
One final note – from the start of 2011 until the end of July, gold has seen a 14% rise. In August alone we have seen a rise from the start of the year of 31%, this leads me to believe that September is going to be one crazy month!
Austin Kiddle has been covering the gold markets for the last 10 years and is a Director at London Bullion Broker, Sharps Pixley