Is gold back?

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An abatement in the wave of speculative selling pressure is allowing strong demand for physical gold from Asian buyers to assert its influence over the price and there is a growing case to be positive over the prospects of the yellow metal.

However, a number of factors have hurt gold in recent months not least position liquidation by star traders George Soros and John Paulson. But those are short-term influences. The elephant in the room for gold continues to be the US Federal Reserve’s plans to taper its $85 billion a month bond purchasing programme.

By Justin Pugsley, Markets Analyst MahiFX Follow MahiFX on twitter

The real questions remains over whether the US economy is strong enough to withstand its withdrawal, an assumption that is yet to be fully tested. However, bond yields have been rising in anticipation of this event, which increases the cost of credit to the real economy.

Now for the bullish case for gold. With September barely two weeks away there are already possible signs that the Eurozone crisis is resurfacing with German finance minister Wolfgang Schaeuble talking about another Greek bailout. If that revives concerns over the health of peripheral economies and hence the survival of the Euro, it could create a search for ‘end of the world’ type insurance offered by assets such as gold.

Indeed, if the word ‘crisis’ starts to dominate headlines again, which will sap economic confidence generally, it could see the Fed reconsider reining in its bond buying programme, especially if inflation is weak. If it were to carry on, that would be great news for gold and could be enough to bring speculators piling back into the metal via exchange traded funds (ETFs).

Gold’s short-term outlook positive

Goldchart-210813 technical fundamental analysis for commodity and currency trading

But bulls not fully back in control

However, with many of the weak longs out of the way and despite a slower pace of central bank buying gold’s recovery could carry on into October due to seasonal factors and ongoing Asian demand. A sustained rise above $1,400 per troy oz will see many momentum players wanting to ride gold on the upside.

But scaling old highs of $1,921 last seen in September 2011 will take considerable momentum ranging from a burst of inflation – seems unlikely in the short- to medium-term – through to an extension of central bank liquidity programmes possibly in a bid to counteract weakening economic growth or a return to the financial crisis.

Therefore attention will remain firmly focused on the Fed for any clues over its tapering intentions.

But as the old saying goes all markets when they start to rally or resume an old one climb a wall of worry.

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About Author

MahiFX is headed by David Cooney, former global co-head of currency options and e-FX trading at Barclays Capital and responsible for the award winning e-commerce platform BARX and Susan Cooney, former head of e-FX Institutional Sales in Europe for Barclays Capital. Operating as a market maker, MahiFX provides traders direct access to institutional level execution speeds and spreads through its proprietary-built fully automated pricing and risk management technology, lowering the cost of retail forex trading. MahiFX global operations are headquartered in Christchurch, New Zealand with offices in London, UK with development and support teams in both locations for 24 hour service. The company is regulated by The Australian Securities and Investments Commission (ASIC), Australia’s corporate, markets and financial services regulator. Article by Justin Pugsley, Markets Analyst MahiFX  Follow MahiFX on twitter and on facebook  Disclaimer: This material is considered a public relations communication for general information purposes and does not contain, and should not be construed as containing, investment advice or an investment recommendation, or an offer of or solicitation for any transactions in financial instruments. MahiFX makes no representation and assumes no liability as to the accuracy or completeness of the information provided. The use of MahiFX’s services must be based on your own research and advice, and no reliance should be placed on any information provided or comment made by any director, officer or employee of MahiFX. Any opinions expressed may be personal to the author, and may not reflect the opinions of MahiFX, and are subject to change without notice

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