Monday, December 12, 2016

The Gold Sector

This coming Monday, 19 December will be the safest day to decide whether to take a long or short position in the gold sector. After the announcement of rate hike this December 14, we will see the market's response whether it is true that rate hike is bad for gold or not.

Not a few contrarian analysts claim that rate hike in an environment of depressed price for gold is good for the sector. They cite the last time the Fed increased rate in December 2015, which they claim became the mother of the gold bull that ran from January to July 2016. However, I could not avoid to think that with the increased rate, the Bank of Japan (BOJ) turned to negative rate, which probably is the real source of the change in the trend of the gold market. If BOJ will repeat such action, my doubt that this coming rate hike will be followed by a renewed run in the gold market will be removed.

As for technicals, yesterday XAUUSD registered a low of $1151.24 per ounce of gold. I see this as the end of the final corrective wave. However, as far as technical analysis is concern, we don't know yet either gold will resume its downtrend or will reverse its direction. If the downtrend is resumed, I have no doubts in mind that the $1000 support will be broken. On the other hand, if the trend reverses, it is better to simply sit down and wait as your "seed" grows until the end of the series of uptrend waves. I am more inclined to believe this latter direction considering that a Shariah law that will certainly affect the gold market will be publicly announced this 29th of December. However, since the manipulation of  western central banks is very strong in the gold market, we really don't know for sure what direction gold will take.

No comments: