Morning Futures Roundup

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Are Traders Embarking on a New Gold Rush?

 Fundamentals


Another day, another new all-time high for Gold prices, with the most active December futures breaching the $1340.00 level for the first time in history, as traders and investors shun paper currencies and turn to Gold as a store of value. The latest fuel to fan the bullish Gold fire came from the Bank of Japan (BOJ), who moved its key interest rate to near 0% in hopes of weakening the Yen. In addition, the Reserve Bank of Australia (RBA) did not hike interest rates as expected, which put pressure on the Aussie Dollar and sparked further investor interest in Gold.

With little hope of a quick resolution to the European debt crisis and the potential for a second round of quantitative easing by the Federal Reserve, it should come as little surprise that investors are getting nervous holding currencies, as it appears that governments are willing to take measures to weaken their currencies in hopes of remaining competitive in the export markets, erring on the side of rising inflation in hopes of stimulating the global economy. It is this inflation fear that is keeping Gold in the spotlight, and which could possibly trigger a return of the ìcommodityî bull market like we saw back in 2008, before the housing market collapse.

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 Technical Notes

If we look at the daily chart for December Gold, we notice that prices have risen over 30% year-on-year, with the market moving further away from the important moving averages. The sharp price rise has sent the 14-day RSI well into overbought territory, with a current reading of 84.80. Although the market does appear overbought and a ìcorrectioní of $100 or more would not be out of the question, it would take a move of just over $200 to even set-up a test of the 200-day moving average that many traders look at to determine if a market is bullish or bearish. The precious metals have a history of making ìparabolicî price moves before signaling an end of a major trend, and although Gold is trading at all-time highs, the up-move has been rather orderly by historic standards. 1350.00 is the next resistance point for December Gold, with support seen at the 20-day moving average near the 1285.00 area.


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