Investors got a few arguments in favor of selling gold after hedge funds doubled their short positions last week despite the Fed's decision to keep purchasing bonds without any changes until the US economy improves enough to start tapering QE3.
What are the near-term prospects of the gold market? Let's ponder on this question together with Masterforex-V Academy.
Gold May See Further Lows
During the week ended on November 12th, the long positions in the international market of gold declined by 37 points down to 55,4 option and futures contracts. This is the biggest decline since February. The short positions increased by 54,1. This is the biggest gain since August.
According to Eugene Olkhovsky, Masterforex-V Academy’s leading expert in financial markets from Canada, gold has recently reversed the major uptrend started 13 years ago. It seems like more investors are losing faith in gold as a safe-haven asset.
At the same time, international stock markets gained some value last week up to 6-year highs amid the US inflation report that showed a moderate increase by 1.2 points. This is equal to 50% of the average inflation seen over the last 8 years. At this point, the Fed has already pumped into the US economy over 2 trillion dollars. Gold slightly recovered on the Fed's intensions to avoid the tapering of QE3 until the US economy is strong enough to withstand it. Still, some experts are sure that the major reason fro the overall weakness in the market of gold is relatively low inflation along with stronger stock markets worldwide.
Traders Anticipate Gold Futures Downtrend
The gold futures price went down by 3,7 points during the 5 trading sessions that preceded the Fed's statement. The statement slightly reassured the market, allowing it to recover by 1,5 points, thereby reducing the weekly decline to nothing. This was the biggest daily gain since October 22nd.
According to the recent survey conducted by Bloomberg (29 exerts interviewed), 18 experts are bullish on gold, 9 are bearish and the remaining 2 are still neutral.
This year, gold has already lost 23%! This is the biggest annual loss since 1981! The spot index of 24 commodities - Standard & Poor’s GSCI- is down by 4,7 points while the MSCI is up by 18 percent points. At the same time, Bloomberg's dollar index calculated as a relation to a basket of 10 major currencies is up by 3 percent points.
Gold prices have been declining fro a long time. It seems illogical since central banks around the world are still printing money, creating excessive liquidity and inflation. It seems like a part of them money should be invested in precious metals. This is what used to be but this is not the case anymore. Why? The thing is that gold itself doesn't make any yield as opposed to bonds or stocks. Gold is an asset used to hedge against inflation. When there is no inflation growth, there is no point in purchasing gold. It is more beneficial to invest in stocks and bonds.
As for gold prospects, we won't see any major rally in the market until there is a major inflation increase around the globe, Masterforex-V Academy reports. In this situation, gold is more likely to go flat or to keep on declining gradually down to local lows.
When the market goes flattish, it becomes much more difficult for an average trader to get something out if it. The prices either won't go or show less predictable fluctuations. However, there is an opportunity to make money even in flat markets. If you want to know the secret, please visit a free webinar hosted by Masterforex-V Academy!
USA Keeps Influencing Gold Market
According to the Fed, the US economy and labor market are still far form their potential. Therefore, the Fed doesn't see any reason to start tapering its accommodative policy.
From late 2008 till June 2011, gold appreciated by 70% since the Fed expanded its personal balance by means of purchasing credit assets! This led to inflation expectations along with dollar devaluation. Still, gold is down by 23% this year since the rate of inflation doesn't seem to be going to grow in the near future.
