The gold markets have spent much of the second quarter of 2013 in a sideways manner. The area around the $1,350 level has been very supportive, but the markets simply cannot seem to gain traction at this point. But then again – most of the time that a market finds a “floor”, its rarely pretty. The area certainly has a lot of interest by both buyers and sellers. However, the trading action has continued to be an erratic affair, and as a result a lot of traders have simply walked away from this dangerous market.
The market should continue to find this area supportive, and now it is only a matter of whether that can hold, and if the buyers can finally get it together. The main reason for the grind at the moment has a lot to do with the Federal Reserve and its monetary policy. The Fed appears at the moment to be getting close to a pulling back of quantitative easing, although at the time of writing there are massive differences in the idea of how much, and how quick. If they do, the US dollar should increase in value, and therefore drive the value of gold down.
Gold Price Forecast- What is ahead for us traders?
Can the US dollar really be the sole driver of the gold markets? Perhaps from time to time, but the gold markets now behave more like currency markets. It is a statement on whether or not you want fiat currencies or hard assets. The reality is that there will be a certain amount of a “fear trade” coming back into the markets, and I feel that the gold markets will eventually find support at one of the three lines on the chart, and although it appears like a lot of possibilities – that’s the point: When you get a trend change – it gets rather messy. Quite frankly, I believe that the real money will be made in the Yen denominated gold markets over the next several months.
The reason I like this trade so much is that the Bank of Japan continues to work against the value of the Yen, and expand rapidly its monetary easing program. Because of the weaker Yen, this should naturally elevate gold prices in that currency. In fact, this could be one of the best trades for several quarters going forward.