In the past 30 years, October has not been a good month for gold.
Gold: Breakout or Failure?
Incertitude in the financial markets is increasing, along with the global economics’ slowdown. With stocks shaking and gold declining, money could again flow into the safe haven nests such as the U.S. dollar.
In effect, markets might not have completed the bearish trajectories yet.
A bottom could be seen only next year. Why?
The U.S. 10 year note futures (futures prices rise, as yields decline) have reached the 26 year’s resistance line. In the past (which does not guarantee future results), this pattern has been an indicator of stock trends. In fact, for 3 times out of 5, stocks have shown the tendency to bottom within 3-10 months after treasurers hit the upper line.
What about gold? It has already lost almost 20% from the top. Investors have been selling the yellow metal to pay for losses somewhere else or to cash in the profits of two years long run. The market is surely healthy. Physical demand from Asia increased considerably at around $ 1600 oz. However, further losses are possible, before prices will start to climb again.
In the past 30 years, October has not been a good month for gold. A move below 1510 in the December futures contract could target 1430 and eventually 1350. If realised, gold’s contraction should be temporary. Real interests rates are negative, sovereign debt worries remain intact and inflation will pick up once more.
For now, nonetheless, only a move above 1720 could target 1750 and eventually 1830.
Angelo Airaghi, www.ProfitsOn.com
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