As we come to the end of April, we would like to remind our readers to stay cautious over the course of next week impending release of key economic data. We are also entering the month of May (Sell in May and go away) resonates again but where will that apply? Similar factors that we take into considerations are the strong dollar, deflation and rock bottom commodities market, all time high stock market, ongoing low interest rate and increasing concern in the bond market.
Starting with China current economy – hard landing has been evaded somehow but its existing policies comes at a great cost. We are seeing how China communist government is applying capitalism in the new normal fashion. Increasing debt level in its current stage is no problem since it has that capacity. Meanwhile, European leaders continue in their battle to love or loathe Greece. As a problem child, Greece leaders are playing a strong card – since there is nothing more to lose, they could enter negotiations with their creditors with threats. Neither side are ready to soften their stance thus no real solutions here as further deadlines are extended.
Meanwhile, the U.S. dollar is softening as we draw closer to a potential rate hike in June. Previous economic data has certainly thrown a spin at the dollar bulls and we see increasing volatility in the market. Only time will tell when the Federal Reserve is ready for the minimal rate hike which many top hedge fund managers warned as a ticking time bomb.
Gold technical outlook, weekly chart
After much hesitation, gold broke lower after rounds of fertile ground to break higher failed. Bulls failed to capitalise on the weaker dollar and correction in the equity market. Instead, price action has been stifled in a tight range and adds negative sentiment to the prospect of holding the non-yielding yellow metal. Weekly chart shows how price action is within a triangle down trend range and we noticed that the pattern often resonates in the same way. Somehow, this give us an insight with a possible view that April and May (possibly 1142 will hold) often lead to lower prices followed by a correction rally from June, July and ended in August (possibly as high as 1260).