subject: Futures Trading and Where Next for the Gold Markets? [print this page] Futures Trading and Where Next for the Gold Markets?
Gold has surged to an all-time high of $1,299.80 per troy ounce and gained 1.3% on the week. The recent US Federal Open Market Committee meeting served as a catalyst for higher gold prices as the precious metal came under heavy demand from traders seeking protection from a deteriorating US dollar.
The Federal Reserve's acknowledgment that inflation is somewhat below' levels deemed consistent with their mandate was taken as a hint that further Quantitative Easing (QE) was on the cards.
If you were day trading you probably would have seen that these comments made the US dollar plunge. As confidence in paper based currency begins to fade, demand for gold will increase as investors seek an asset that will retain its value during uncertain times.
For those investors who are gold spread betting note that this demand is mostly likely to come from:
1)US investors fearing a drop in the dollar
2)Japanese investors worried about further currency intervention from the Bank of Japan
3)UK investors who are seeing sterling decline amidst buoyant inflationary conditions
Gold could also see support from other areas, according to David Choe of IG Index, "The additional uncertainty surrounding the US mid-term elections is likely to support gold prices in the short-term. Not only that but physical demand for the yellow metal is traditionally high at this time of year due to festive activities in India.
"It is difficult to see what may break the metal's remarkable momentum in the near term. The possibility of a prolonged stock market rally and greater clarity in the world economic recovery could see traders lock in profits and seek higher yielding assets.
"In my view, however, this seems unlikely to happen given the current environment. Furthermore, gold is still well below the nominal high of $873 reached in 1980. In inflation-adjusted terms this would equate to $2,312.94 in today's prices".
So where next for the gold market? Simon Denham of Capital Spreads thinks it's little more difficult to call, "Gold remains at highs but few investors are willing to take any risks at current levels. Sellers of gold have been burnt too much and even the natural buyers are wary at these high prices.
"With the price so close to $1,300, it would seem rude not to have a look. Having said that $1,300 is acting as price resistance. Currently, there is price support at $1,287/89 and any pull back will be likely to get to this point. In fact, there is a whole band of mini supports going down to $1,200, but it would take quite a change in mindset of the traders to break them all.
"Overall it's a tricky market to call as the trend is still upwards but there seem to be few takers at the moment. Of course it would be a little disappointing if market did not have a little look at $1300".
Before you trade though, ensure that spread betting matches your investment objectives, it carries a high level of risk to your capital and you can lose more than your initial investment. Make sure you familiarise yourself with the risks involved. Spread trading carries a high level of risk to your capital. Seek independent advice if necessary.
