Forex markets have seen some interesting trends recently, with the US Dollar maintaining most of its position of dominance throughout the year. There is strong fundamental reasoning behind this activity as the US continues to show the most progress in recovery after global financial markets hit their troughs in 2009. Labor markets have shown sustainable strength and consumer spending has helped generate the better corporate earnings performances that pushed stocks to new records. The Dollar fell in line with these trends and hit highs above 1.10 in commonly traded forex instruments like the EUR/USD.
But the some of these markets have started to reverse course now that we are seeing reluctance at the Federal Reserve to start normalizing its interest rate policy. This creates an environment where we could start to see stabilization in gold markets, as investors look for an alternative store of value in a low-interest rate environment. Given the closely correlated relationship between the Dollar and precious metals, these are all factors that should be on the minds of forex traders as the open up some new opportunities for investments in an environment where options might otherwise be limited.
Guest post by Atlanta Gold and Coin
Chart Outlook: GOLD/USD
In the chart above, we can see that gold has fallen nearly 6% over the last year, with some stalling downside momentum coming toward the end of the summer. This should not be viewed as a coincidence because this is also the time at which the Federal Reserve made its policy stance clear. To fully know whether or not these trends are likely to hold, we must identify some important technical chart levels going forward.
If prices continue to be stable, the next level of upside resistance is now seen at 1172. A bullish break here would indicate that the bottom for gold prices is now in place just above 1080. Contrarian traders might view this as a longer-term buying opportunity given the fact that we are still seeing significantly depressed levels when looking at the larger time horizons. It should be remembered that prices were trading near the 1300 level just at the beginning of this year, so there is still significant upside potential if the bullish side of the market is able to start gaining traction.
The primary factor in these areas of the market should continue to be the next actions to be taken by the Federal Reserve. A rising interest rate environment tends to create a more negative context for precious metals, so this is likely to continue to be where most of the investment markets are focusing their attention. If the central bank maintains its current position, then we would see some upside in the precious metals space, with GOLD/USD being a primary beneficiary.
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