Gold Outlook

07-Sep-2011

Technical Level

R2=1947.29

R1=1911.79

PP=1885.38

S1=1849.88

S2=1823.47

Gold broke yesterday all time high of $1912 and print $1920 fresh all time highs before reversing to $1858 after the Swiss intervention. Gold traded in a wide range of 61.8$ and closed at 1878.5$, down 22.0$.I suggest investors to view any downside as an opportunity to ‘Buy’, keeping stoploss at 1802$. The support and resistance are lined up at 1814$ and 1847$, respectively.

Fundamental

Financial markets traded with great Tuesday. Concerns over debt problems in the Eurozone remained, sending European bourses -1% lower. Wall Street also fell with DJIA and S&P 500 losing -0.90% and -0.74% respectively. The biggest event happened during the day was SNB's intervention. The central bank announced, with immediate effect, it will no longer tolerate a EUR/CHF exchange rate below 1.20 as is prepared to purchase foreign exchange in 'unlimited quantities'. Gold initially jumped to a record high of 1923.7 but rapidly reversed gains as investors took profits and sold the metal to cover losses in their long CHF positions. On the contrary, oil rebounded strongly after plummeting earlier in the day. The threat of a storm in the Gulf of Mexico sent prices higher.

In the statement regarding currency intervention, the SNB said that Swiss franc, even under the new target, is still high and should 'continue to weaken over time'. The SNB pledges to take further measures, if 'the economic outlook and deflationary risks demand it'. CHF slumped -10% after the announcement while gold tumbled as much as -3.22% after surging to a new all-time high. Those who long Swiss franc usually seek safe haven and they normally bought gold simultaneously. The yellow metal's decline was due to liquidation as investors cashed in profits made from long positions in gold to cover losses incurred from long positions in CHF.

By

M.Zohaib Gadit

Forex Trading Consultant, Shivani Financial