To say that it has been volatile this week would be a gross understatement, but for gold traders in particular, Wednesday’s price action was certainly one for the record books.
The FED decision on Wednesday not to taper its bond buying program completely wrong footed the vast majority of market players, although why this should be I find rather perplexing for two reasons. First Ben Bernanke never actually said the taper would start in September, and second the poor NFP data earlier in the month would have been sufficient to cast doubt on any decision anyway.
For gold, which had been moving steadily lower since early September, Wednesday’s statement came as a welcome relief to gold bugs, with the precious metal surging from a low of $1291 per ounce to end the session at $1367, a gain of almost $80 per ounce on the day. After such a dramatic move it was no surprise to see some muted price action on Thursday, with a long legged doji candle which duly delivered a reversal in today’s trading session, with gold looking to end tonight’s trading session around the $1332 per ounce region.
Moving forward the question now is whether Wednesday’s bullish momentum can be maintained, and certainly from the subsequent reaction, gold still remains weak. The shooting star candle of late August defines the high at $1420 per ounce, and with the current price action testing the $1330 region of price support this is now a key level, and needs to build a platform here, to prevent gold falling further. On the horizon of course, there is potentially more bad news for gold bugs, should Angela Merkel fail to gain a working majority in the German elections. This would result in a potential surge in the US dollar, and consequent weakness for gold, assuming the inverse relationship holds firm, which was certainly the case this week. Longer term, the outlook for gold remains positive, as inflation comes to its aid, but before that, the metal has to contend with the tapering effect which is likely to be damaging in the short term. So Wednesday’s bright star may wain very quickly, and indeed already seems to have done as we come to the end of another trading week.
By Anna Coulling