Forex Money Weekly: Gold Heading Higher

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 |  Includes: GLD, SLV, UDN, UUP
by: Mario Sant Singh

Gold prices have advanced to the highest since mid-June on signs of physical demand. Last week, the net-bullish position rose 18 percent to 56,604 futures and options according to data from the U.S. Commodity Futures Trading Commission. This caused gold prices to jump 4.5 percent to USD1,371 an ounce on the Comex in New York.

Thirteen analysts surveyed by Bloomberg News expect the metal to rise this week, with a further four bearish and five neutral. That's the highest proportion of bulls since March 8. The bullish view is also echoed in India, the world's biggest buyer of gold. In the India Gold Convention held in Jaipur on 16th and 17th August, 11 traders, jewelers and analysts estimate that gold prices may reach USD1,450 an ounce by the end of the year. This morning, gold hit a 2 month high of USD1,384.45.

Gold has fallen 17 percent this year. It tumbled a record 23 percent last quarter as some investors lost faith in the metal as a store of value. The rout spurred losses for billionaire John Paulson, who joined George Soros in selling bullion holdings in the second quarter of 2013. Gold tumbled into a bear market in April, reaching a 34-month low on 28th June, amid speculation that the Federal Reserve would start its tapering program and curb stimulus.

The low prices in recent months has certainly attracted the bulls. According to the World Gold Council, global demand for gold coins and bars has risen to the highest since 2008, led by India and China. Global bar and coin sales soared 78 percent last quarter from a year earlier to 507.6 metric tons as demand more than doubled.

Jewelry demand jumped 37 percent to 575.5 tons. According to the China Gold Association, China's consumption rose 54 percent to 706.4 tons in the first half of this year, putting it on track to overtake India as the biggest user.

Silver is also seeing a nice uptrend, with bullish wagers jumping to 11,423 contracts from 4,358 a week earlier. Prices surged 15 percent in New York last week, the most since September 2008. This morning, silver prices touched a 3 month high of 23.61.

Top News This Week

Euro: German Flash Manufacturing PMI. Thursday, 22nd August, 3.30pm.

I expect figures to come in at 51.1 (previous figure was 50.7).

Canada: Core Retail Sales m/m. Thursday, 22nd August, 8.30pm.

I expect figures to come in at 0.1, (previous figure was 1.2%).

Trade Call

Long XAU/USD at 1365

On the H4 chart, gold has broken through a strong resistance at 1346 and touched a 2 month high of 1384.45 due to buying demand from India and China. I see the uptrend continuing in the short term.

We will go long once XAU/USD retraces to 1365, which is at the 12 Exponential Moving Average. We will have a stop loss at 1349 and we will have two targets on this trade, exiting the first position at 1381 and the second position at 1397.

Entry Price = 1365
Stop Loss = 1349
1st Profit = 1381
2nd Profit = 1397

Click to enlarge

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.