Gold markets fell initially during the day on Wednesday but as you can see on the chart, we have a yellow rectangle marking where previous resistance had been found. Adrian and I both believe that the $1275 level was a barrier that the market respected for some time, and now that we have broken above that level -- only to turn around to test it for support -- we feel that buyers are about to become a bit more aggressive. By doing so, they will finally break above $1300, which has been a psychological barrier for some time now.
Going Higher For Many Reasons
Gold is going to go higher for many different reasons in our opinion. Quite frankly, gold was far oversold recently as the US dollar strengthened due to fear. And then after that, there was the idea that the Federal Reserve will start raising interest rates systematically over the course of 2016. However, things are starting to look a little bit softer at this point and as a result, we may not get as many rate hikes as once anticipated. This is obviously bad for the US dollar, which has a bit of an inverse correlation to the gold market -- at least over the longer term. It doesn’t mean that they have to move in opposite directions, just that a falling US dollar certainly can help the value of gold itself.
Going forward, the momentum certainly looks as if it's starting to pick back up as the moving averages are all starting to turn higher again. On this chart, we have plotted the 25-day exponential moving average, the 50-day exponential moving average and the 100-day exponential moving average. They all look very healthy and are starting to spread back out again. That said, it appears the trend traders and, more importantly, long-term traders, are now looking to buy gold. We believe that we’ve started yet another multi-year run higher, mainly because of uncertainty from various central banks around the world. Loose monetary policy is going to be the norm for much longer than anticipated.
