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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Gold Markets Poised For Rally

Commodities / Gold and Silver 2015 Sep 28, 2015 - 08:49 AM GMT

By: Richard_Cox

Commodities

In 2015, most of the financial media has been focused on stock performance.  Several of the world’s most commonly watch stock benchmarks are holding near record levels, even with the slowing momentum that has been seen in most industry sectors -- so this is not entirely surprising.  But when we look at recent activity in gold markets, it starts to look as though commodities deserve a second look.


From the fundamental perspective, reduced buying in equities suggests that investors are looking for alternative stores of value.  This puts gold in an excellent position to rally now that prices have started to stabilize above the 1100 mark.  This outlook remains valid as long as we do not see any surprise changes in global interest rates. 

Chart View:  Gold Yearly Change

Chart Source: Atlanta Gold and Coin

In the chart above, we can see the one-year performance in base gold prices.  The 5.49% decline here is somewhat surprising given the fact that we are still caught in a zero-interest rate environment in many of the world’s largest economies.  Recent policy statements from the Federal Reserve suggest that there is more of a concern for market volatility than there is for rising inflation at the consumer level. 

This could keep interest rates depressed for a relatively lengthy period of time, even if we see a few small rate increases into next year.  As long as most market assets fail to produce significant yield, we will have an environment where gold prices can start to gain a proper footing.  These markets have seen massive declines after hitting the all-time highs posted in 2011, so it is very hard to argue against inherent value in these commodities sets when entering in at these current levels. 

From a technical perspective, prices will need to break above the 1240 level in order to confirm the bullish bias.  We have seen the price structure start to stabilize after hitting the summer lows and this matches bullish indicator readings that are rising in tandem with these short-term moves higher.  Any violation of support at 1080 would suggest that the downtrend is still firmly in place and we would then expect at least a test of the psychological 1000 mark in relatively short order, as stop losses would almost certainly be tripped in the run lower.

In all, these are the factors that will need to be watched over the next few months.  Gold markets have been on the wrong side of significant selling pressure but if we start to see further reluctance in interest rate policy, we could be looking at some strong runs higher as longer-term investors start moving back into gold at these cheaper levels.

By Richard Cox

© 2015 Richard Cox - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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