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Gold Price is Nearing Record Low – When to Buy?

Commodities / Gold and Silver 2015 Dec 02, 2015 - 02:49 PM GMT

By: Nicholas_Kitonyi

Commodities

The price of gold has been under intense pressure over the last few weeks as expectations about the increase of the U.S. interest rates continue to rise. The Federal Reserve is expected to make an announcement soon with regard to this matter and several financial reviews believe that an uptick could come as early as this month.

This has helped to push the price of Gold close to its 5-year low of $1,056. However, in the last few days, the price of the yellow metal appears to have hit a turning point with some investors convinced that the expected interest rate hike has already been tacked into the bin.


On the other hand, there is also a school of investors who believe that there could be delays in increasing U.S. interest rates as the country’s current economic recovery numbers continue to draw mixed opinions from analysts.

This scenario is slowly building a bull case from a fundamental perspective while the technical side of things also continues to point towards a rebound in the price of gold as we edge closer to the end of the year.

Now is the time when bullish gold traders via various platforms such as Trade-24 would be looking to pounce as the rest of the world continues to assume that a strong USD and a promising US economy would keep the yellow metal pegged to the floor.

Technical analysis

At $1,066 an ounce, the price of gold appears to be set for an upward run that could take it towards the $1,080-$1,100 levels going into next year.

Now, as illustrated in the gold price daily chart above, the price of the yellow metal appears to have touched the lower Bollinger band, which in most cases would suggest a strong case of a rebound.

In addition, the Chande Momentum oscillator indicates that trading activity has already moved from the region of oversold to normal trading zone in the daily chart, which suggests the current upward movement in price could continue for the next few days or weeks.

The daily chart can be used to determine the immediate direction of the price of gold, but in order to confirm this, it is important to look at what the weekly chart suggests.

Now, based on the weekly chart, the price of gold has been on a downward trending wedge since early 2014, albeit with a series of rebounds characterized by lower highs and lower lows. Again, the price of the yellow metal appears to have touched the lower Bollinger band in this illustration which would suggest a possible rebound in the coming week.

Furthermore, gold price also appears to have touched the downward trending support in which case it would trigger an upward rebound.

Based on the weekly chart, the overall movement of the price is still bearish and it appears to have entered the oversold region in the Chande Momentum oscillator once again.

When you look at previous cases when this has happened, the price of gold has mostly reversed to the opposite direction, which would mean that traders should brace themselves for another upward run.

Fundamental analysis

While the most dominant picture in the news is the high expectation of US interest rate hike, recent developments suggest that this could yet play in the hands of the yellow metal.

The price of gold has plunged due to this expectation, but a delay in raising the rate could suggest that things are not as rosy as they appeared from an economic perspective. In fact, there are those who believe that the US could be shooting itself in the foot if it raises interest rates without careful consideration of the likely consequences.

Right now, analysts believe that the price of gold has become so predictable in the recent past rallying during Asian trading sessions and falling during US sessions. This is down to the fact that the USD denominated gold price becomes under pressure when US markets open while gaining strength when they are closed.

However, there are others who fear that a US interest rate hike in December could be followed by an economic slowdown and this could unlock a bunch of unwanted case scenarios. For instance, there could be a rise in corporate loan defaults, a pullback in lending and contagion across asset classes, which could turn the economy to another downward spiral.

In fact, an article published on the Financial Times claims that the downward spiral might have already started even before the Federal Reserve makes its move to tighten economic policy. This means that the US could be making a huge mistake to raise interest rates in which case gold investors could benefit at the tail end of it all.

Conclusion

The bottom line is that the price of gold is approaching multi-year lows, but based on the recent turn of events, it may not reach that level this time around as it appears to have already turned the corner on the daily chart.

In addition, investors appear to be betting too much on US raising interest rates, yet there are those who believe that a rush decision to raise interest rates could send the country’s economy into a downward tantrum, in which case gold bulls would benefit magnificently.

Therefore, it appears that now could be the right time to buy the dip.

By Nicholas Kitonyi

Copyright © 2015 Nicholas Kitonyi - 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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