Will Gold Bulls Finally Hit The Panic Button?

By: Submissions

Nicholas Kitonyi writes: The commodities market has been on the spot for the last 12 months and by extension over the last three years, if you include Iron, Copper and Aluminum. However, the most notable developments have come in the precious metals category and Oil and gas.

Specifically the prices of Gold and Oil have fluctuated extensively with Oil settling on a range of about $43 to $50 per barrel, while the price of gold has oscillated between $1,110 and $1,190 over the last two months. The price of oil is down 12% this year after making massive dips and spikes over the last 12 months, while gold remains barely unchanged.

However, a lot more of the spotlight has been directed towards the price of gold, especially given developments at the US Fed committee with regard to interest rate hike. The announcement of interest rate hike has seemingly looked likely most of the time since the beginning of the year, though at times; comments from the US Federal l Reserve committee have created an aura of skepticism and confusion amongst investors.

This has triggered some level of uncertainty with regard to the behavior of the price of gold with traders now monitoring closely developments in the US economic numbers.

An atmosphere had begun forming following the recent uptrend in the price of gold which saw it break above the 200-day moving average, with some strongly believing that any potential impact of an interest rate hike had already been priced in.

However, Fed’s comment for October, which highlighted some issues with regard to the expected growth in the US economy as a reason to hike the interest rate sooner than December was received with a bearish sentiment in gold market. This is because the comment was more positive than September comment which pointed to potential global economic slowdown that led to media and analysts predicting a 2016 rate hike.

"The expectations of that Federal Reserve rate hike are going back and back. We did a poll in our base metals summit survey earlier this week and the majority of the audience are expecting a post December hike, those expectations are being pushed out," head of commodities research at Macquarie, Colin Hamilton told CNBC.

As such, the recent shake-up in the price of Gold that saw it drop from about $1,182 to about $1,152 per ounce. Currently, the price of spot gold is pegged at $1,147, but in the coming few weeks, we have a number of possibilities for the next destination.

Right now, the price of gold seems to be headed towards the $1,132 market, upon which it will then either rebound back up or continue to slide further.

The price of the yellow metal has been oscillating within an upward trending wedge since August, but it is now facing the biggest test yet, as to whether it can continue on the same trend.

Some analysts already see the price of the yellow metal ending the year within the $1,000-$1,100 region or below, which means that sliding further may not be far off the mark. In fact, the price of gold is more likely to decline to around the $1,100 mark than it is likely to rebound back to about $1,164, especially given the recent developments, which saw it give up $30 an ounce over the last few days.

The long term target price levels on the two opposite extremes remain at $1,200 on the upside and $1,000 on the downside, but these may remain to just targets at least until the end of the year.

Nonetheless, as we edge closer to end of the year, and the FOMC running out of time to finally increase the interest rates, investors will continue to be anxious and this could as well provide a decent support for the bulls who still believe that gold could break the $1,200 barrier again this year.

Conclusion

In summary, the way forward with regard to interest rate hike will most certainly decide which direction the price of gold takes in the next few weeks and in this case, the longer we wait, the higher the chances of the price of gold rebounding.

However, as witnessed in recent FOMC statements, any indication that the Fed could raise interest rates before the end of the year will most likely put pressure on the price of gold. This is because when interest rates are rising, investors tend to favor yielding investment opportunities where they can capitalize on capital gains.

The bottom line is that when this happens, a few gold bulls out there are likely to hit the panic button as they seek to complement losses in gold investments with gains in the capital markets.

By Nicholas Kitonyi

Copyright © 2015 Nicholas Kitonyi - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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