Weaker dollar may soften impact of lower gold price

09.41 AEDT, Tuesday 12 February 2013

Weaker dollar may soften impact of lower gold price for local miners

By Ric Spooner (Chief Market Analyst, CMC Markets)

Gold miners may be a feature of an otherwise quiet Australian market today. Gold traders and investors were unsettled by the size of gold’s fall on a quiet news session in international markets.

In the medium term gold is likely to benefit from ongoing central bank demand, improving jewellery sales, and investor concerns that international monetary stimulus will ultimately lead to inflation and ongoing currency debasement.

In the shorter term though, many traders fear that short term strength in the US Dollar could see gold retreat towards the technical support of its 2011 and 2012 lows around $US 1535. These concerns were fuelled when the precious metal declined below the much-watched 200 day moving average last night.

The 200 day moving average is a feature of the local gold mining sector at the moment. Not only did the metal itself fall below its average yesterday but leading mining stock Newcrest, went into reverse after peaking just below the resistance of its 200 day moving average at $24.87.

On a potentially brighter note for mining stocks, the Aussie Dollar also fell through its 200 day moving average yesterday. The significance of this move may be increased if the currency gets well clear of the average falling towards $1.02. A decline to this level could signify further weakness ahead for the Aussie helping offset the impact of any further decline in gold prices for local mining stocks.

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