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Forexpros.com Daily Analysis - 24/05/2011

May 24, 2011 5:59 AM ET
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New All-time High of Gold against Euro: 1.080 €/oz

Gold has found a good support at 1,487 $/oz after a strong sell-off phase occurred two weeks ago. In fact, the Yellow Metal held out to the downward pressure and rebounded above the psychological threshold of 1,500 $/oz.

The Market Driver of the week was undoubtedly the strengthening of the U.S. Dollar, which has come back under 1.40 on the Cross Eur/Usd. The great weakness of the Euro currency is probably due to the strong pressure on some countries of the Old Continent; in fact, two important macroeconomic news strongly weakened the Euro last week: the downgrade of debt ratings of Greece from B+ to BB+ by Fitch and the unexpected change of outlook for Italy from stable to negative by Standard & Poor's. Accordingly, the Euro weakened, losing ground against the Greenback. The result has been the reaching of the all-time high of Gold against Euro, 1080.23 €/oz. Unfortunately, the forecast for the Cross seems to be negative, as Greece's concerns appear larger and more complicated to solve than expected and rumors about a possible exclusion of the Hellenic country from Eurozone begins to rumble on the market. The risk involved in that case is the "domino effect" that may lead to a real structural crisis of the European Union. Macroeconomic news are expected for the week: U.S. Jobless Claims (05/26), U.S. Core PCE (05/27) and Michigan Confidence (05/27).

From the financial point of view, after some days of sales, Gold ETFs have strongly increased the amount of physical Gold held, reaching 2,062 Tons. With regard to the financial positions at COTR, at the contrary, we can appreciate a further decrease in Net Long Positions, fell to 23.9 Mln, the - 7.8%.

From a technical point of view, Gold is fluctuating around the psychological threshold of 1,500 $/oz, without showing trend signals. The 1,487 $/oz level has provided a firm support to the bullish trend, which in the long run remains intact. In the short term, however, it is possible that the Metal can fluctuate into the side channel between 1,518 $/oz and 1,487 $/oz. It will be important to see the breaking of one of these two levels to understand the new direction of the market.

First support at 1,500 $/oz and first resistance at 1,506 $/oz.

We recommend extreme caution in taking positions because of the volatility and uncertainty.


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