Monday, April 15, 2013

Gold broke its strong support

Gold broke below its strong horizontal support at USD1530-1550 last Friday. With this breakdown, gold has turned bearish. Its next support would be the parallel line to the current downtrend line at USD1450- coinciding with the horizontal support at USD1440.

Chart 1: Gold's daily chart as at April 12, 2013 (Source: Stockcharts)

Chart 2: Gold's weekly chart as at April 12, 2013 (Source: Stockcharts)

The other precious metal, Silver also dropped last Friday but it managed to stay above the strong horizontal support of USD25.

Chart 3: Silver's weekly chart as at April 12, 2013 (Source: Stockcharts)

The decline in the price of precious metal is in line with the decline in the prices of commodities in general (see the Reuters/Jefferies CRB index below). What happens to the idea of gold as a safe haven asset in a world of easy money? I guess we will have to wait & see.

Chart 4: CRB's weekly chart as at April 12, 2013 (Source: Stockcharts)


Sharinginfoz said...

luckily i had liquidated my holding in october last year

Alex Lu said...

Hi Sharinginfoz

Congratulation to you. At some point in the not-too distance future, I believe gold may rise again. Gold will benefit from loose monetary policies and the return of inflation.

Despite loose monetary policies, inflation has been negligible. The inflation that economists look at is the inflation that hits the consumers (or, CPI). Assets inflation is running wild but nobody is looking at that.

CPI is low because of overcapacity (due to excessive liquidity & over-investment in productive capacity). In addition, labor cost has been dropping for the past 30 years due to migration of production from high labor-cost countries (eg: USA) to low labor-cost countries (eg: China). However, labor cost in places like China has risen steadily in the past few years due to high commodity prices & the need to match the rise in property prices.

Because of the over-capacity, loose monetary has not been translated into higher inflation. However, I believe that once we crossed the tipping point, inflation will return with a BANG. Then, gold prices will rally anew. Property prices would explode higher. Central banks would tighten but alas it would be too late. The genie has sprung out of the bottle!