It’s no secret that gold had a tumultuous year during 2013, with many analysts forecasting that a price per ounce below $ 1,000 could dominate the next few years. However, in early 2014, the price has recovered from lows of around $ 1,200, leaving buyers and investors wondering what’s next. A look at recent action could offer some clues to the long-term future of the yellow metal. This is a question many traders ask themselves, and the best way to make predictions of this nature is to look at the fundamentals. As an example, consider gold at its current levels as of March 2014.
Gold has closed with a large bearish engulfing candle below the main resistance at the 76.4% fib level, showing considerable downside risk. The yellow metal is expected to continue the slide to $ 1,307 an ounce or even lower amid waning optimism from the Fed. This suggests that even after the rally in early 2014, there could be some downsides before the price breaks. recover.
The metal is trading near $ 1,360. Resistance can be seen near $ 1,374, the 76.4% fib level, ahead of $ 1,392, which is the high of the current wave. A daily breakout and close above $ 1,392 will accelerate the bullish momentum, opening doors for new multi-month highs above the $ 1,400 milestone. If the price can reach this level, this would effectively validate a trend reversal and, in turn, a future appreciation.
On the downside, the precious metal is likely to find support near $ 1,336, which is support from the 61.8% fib level before $ 1,307, which is a short to medium-term pivot zone for the metal. A daily close below the pivot zone could accelerate the move to the downside exposing new lows below the $ 1300 level. So what could affect the price of gold and bring it to the aforementioned levels?
FOMC meeting
The monetary policy of an economy (especially the US) is one of the main determinants of the value of gold. As an example of why this is so, consider the next meeting of the Federal Open Market Committee (FOMC) scheduled for March 18-19. Analysts are unanimous that the Federal Reserve will keep the cash rate stable at 0.25% to avoid hampering economic growth, but the central bank may also reduce monthly bond purchases by $ 10 billion to $ 55 billion if the bank announces a gradual reduction for the third consecutive month, could translate into a considerable bearish momentum in gold, jeopardizing any long-term appreciation.
Russian hostility
Another factor that can affect the price of gold is geopolitical unrest. In times of uncertainty, investors often reallocate capital to less risky assets, one of which is gold. Increased demand leads to an increase in price, so during wars and other situations of a similar nature, gold will generally appreciate. As an example, consider the situation in Ukraine. The Russian aggression against Crimea has caused the worst crisis since the cold war. The United States and European countries have already warned Russia that if the country were to hold a referendum, it would face more sanctions from Western countries. Putin ignored the warnings, and the United States and the Eurozone have imposed numerous travel restrictions and asset freezes on Russian diplomats. Financial markets will have one in the situation, which if it rises, it will likely raise the price of gold, reaffirming a long-term bullish bias.
US inflation data
Finally, economic data can affect the price of gold. As an example, consider the next few figures from the Consumer Price Index (CPI). Based on the average forecast of various economists, the CPI, a leading indicator of inflation, fell to 1.2% in February 2014 from 1.6% in January 2014. Similarly, analysts have forecast a steady reading of 1.6% in the CPI excluding energy and food prices. , also called the underlying CPI, for the previous month. Generally speaking, high CPI readings (close to 2%) are considered good for an economy. So if the CPI data is better than expected, it could cause strong downward pressure on gold and vice versa.
All that said, while it is often difficult to accurately predict the price of any asset over the long term, a consideration of the above factors can provide insight into the levels to watch.