Expect huge price swings next month

February 23, 2016 01:11 PM

Gold is confirming that a bottom is likely in place

During the recent decline in gold, many have started questioning its status as the safe haven in this current deflationary environment. All of the “naysayers” were given a befitting reply when gold surged more than $50 an ounce and settled at its highest level, in almost a year, on Thursday, Feb. 11, while investors tried to escape the global market route by investing in safe haven assets.

Gold has been the best performing asset class in 2016, while the world and the U.S. equity markets have had their worst six weeks. The Chinese economic slowdown and other uncertain economic situations globally have led investors into gold. An existing negative interest rate scenario globally, led by Japan, the ECB and possibly the Fed, is also contributing to making the market participants nervous.

In the current rise, gold has broken out its critical resistance level, which earlier had put a cap on the move up (these points are marked with arrows on the chart below). However, the buyers have become over enthusiastic and have pushed the RSI into overbought territory, which will cause a retracement in gold. Find out where and why gold is about to correct and when you should invest for the long haul. The U.S. bond markets also have seen buying as being another safe asset class and the rise in value confirms rates will continue to decline as explained by this bond trader.

The U.S. dollar is experiencing profit booking

The U.S. dollar, which also is a safe haven at times, is experiencing profit booking by the bulls. The index will turn bearish once the dollar index declines, and stays below 93. Currently, the euro and the Japanese yen have turned bullish and are most likely to lead the way, signaling that the dollar will follow suit and drop even lower.

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About the Author

Founder of AlgoTrades Systems., internationally recognized market technical analyst and trader. Chris is also the founder of TheGoldAndOilGuy.com, a financial education and investment newsletter service. He is responsible for market research and trade alerts for of its newsletter publication.