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Wednesday, December 05, 2012

Gold- short-term uptrend may be over

Recent economic news & data have been fairly encouraging. With economic data from China showing signs of improvement and Eurozone slowly inching away from the abyss, the only major problem on the table is the US fiscal cliff. Even US economic data has been fairly good, with improvement in house prices and an unexpected rise in US PMI in November to 52.8.

The better economic news would mean that there is less incentive to more unconventional monetary policies. That may be the main reason why gold prices began to ease off. The failure to surpass the October 'high' of USD1800 means that gold's short-term uptrend could have ended. If gold prices were to drop below November 'low' of USD1665, a short-term downtrend could begin. The strong support for gold is at the horizontal line at USD1550.


Chart: Gold's weekly chart as at Dec 4, 2012 (Source: Stockcharts.com)

2 comments:

Mat Cendana said...

Trading over the past few sessions and the charts definitely suggest so. But some believe it's not really due to conditions improving (seemingly) with the major economies - the slide is due to concerted manipulation by central banks in an effort to spook off those thinking of putting their capital in base metals, especially physical stock. http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/12/4_Turk_-_Here_Is_Why_They_Are_Pounding_Gold_%26_Silver_Today.html

A growing number of people have grave concerns about the sustainability of fiat money - or its value specifically. This is especially so when it comes to the US dollar and euro. More and more of these currencies will be printed, especially as a means for their debt-fuelled governments to carry on functioning. This is unsustainable - at the moment, although the US dollar is widely accepted, we must also remember that this is so only because of "trust" and "belief". When these dissipate, so too will the demand for the dollar.

The same goes for other currencies. The only thing that has stood the test of time over thousands of years are gold and silver. If one has a gold or silver coin in his possession now, it doesn't matter which country had issued it and when. It might even be from a country or government which no longer exists today. BUT the owner can easily convert it to any currency he wants (including ringgit, of course) based on its weight.

Gold might not be good for TRADERS at the moment (unless if he has a short position) but I believe this drop is only temporary.

How low will it go? This I wouldn't know. But this slide is also a good thing for those who want to diversify into trading gold or/and having physical stock as insurance against possible economic and currency turmoil.

The point is, regardless of what the short term outlook appears to be, gold will ALWAYS have some value. The same can't be said of currencies and definitely not of stocks which can become worthless, as had happened before in the past.

Alex Lu said...

Hi Mat Cendana,

I agree with your take that gold will always have value. I can't see how we can walk away from the habit of printing money to solve our problem these days. Quantitative Easing and its other variants are like drugs- once you have tasted them, you can't do without them.