Trading Gold by the Text Book
Since gold is volatile and will react to most economic indicators, especially announcements from the Federal Reserve. The gold price is sensitive to a number of scheduled U.S. and Euro area macroeconomic announcements—including retail sales, non-farm payrolls, and inflation. Gold’s high sensitivity to real interest rates and its unique role as a safe-haven and store of value typically leads to a counter-cyclical reaction to surprise news, in contrast to their commodities. It also shows a particularly high sensitivity to negative surprises that might lead financial investors to become more risk averse.
Just about any investors could have and should have “sold” gold this week. All the signs were there. Gold had climbed to an unsupported level, on a combination of market indicators and geopolitical worries combined with uneasiness over Greece and the Eurozone.
Recently, a new economic indicator has been added to the markets, it is called Ben Bernanke, every time this man speaks gold drops.
The last time Fed head Bernanke spoke gold plunged close to 75.00 in minutes. When the FOMC released their minutes and statement, telling the markets they were going to hold rates close to zero until 2014 gold dropped like a lead balloon.
The drop in gold today was predictable and from the basic trading manual for beginners.
The US economy was doing well, all indications show that hiring’s are up, unemployment is slowly falling, and recovery is on track. In Europe both Greece and Portugal, have been handled. Spain and Italy are no longer looking as problematic as they were a few weeks ago.
Investors are no longer in need to a safety net. It was time to venture out to find riskier assets.
Gold is trading at 1637.25 down 56.95 joining most of the commodities trading lower today.
Gold should find a bit of support around the 1625 level, but will most likely break through, especially if there is a strong jobs report on Thursday.
Fed Chairman Bernanke today said again that the pace of the economic recovery has been “frustratingly slow.”
Don’t worry if you missed this trade there will be other chances.