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Gold Bounces: Another Fake-Out?

Commentaries & Views

(Kitco News) - Was yesterday the capitulation event for the metals complex?  It appeared that no bids were present in the market for a period of time and as Australia opened, gold fell an additional $10 from Wednesday’s close. When the Tokyo market opened, buying emerged, most likely on bargain hunting, which accelerated when news broke that China announced a new round of trade talks with the U.S. The recent stories about contagion spreading to the European banks from the financial woes in Turkey and the general uncertainty of the effects of a global trade war would have been assumed to be positive for gold. If the issues do create issues for the EU and then infect the U.S. financial market, it will be positive for gold. But, the first move is into the dollar and to some extent into the yen. In the financial crisis, gold initially sold off, and did not begin to ascend until the Fed lowered rates to zero, which crumbled the dollar and fueled gold’s surge. What has become apparent is that emerging economies, who have their debt in $U.S., are struggling with higher rates, as the interest payments take a bigger slice of their reserves. Will this be enough to create at least a pause in Fed policy? The key for gold’s direction remains the dollar. We may just have another dead-cat bounce on our hands here. The technical damage has been severe. Let’s go a step at a time for the bulls. Close above $1,182 and then $1,187 for a possible bottoming signal. Support at the $1,173 area.

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