All eyes on Gold as rally indicates ‘key reversal’

09.56 AEST, Tuesday 21 May 2013

All eyes on Gold as rally indicates ‘key reversal’

By Ric Spooner (Chief Market Analyst, CMC Markets)

International news and market action gave investors little reason to change their outlook overnight and the local market looks set for a steady open this morning.

Gold stocks are likely to be a focus again today with the metal staging a sharp reversal overnight. In volatile trading, gold finished more than 4% above the low of the trading session as the US Dollar fell in response to concerns over a potential US rating downgrade later in the year.

In technical terms this rally represented a “key reversal”. This is often looked upon by analysts as an indication that a downtrend has ended, at least for the short term. While this development may encourage short term traders, longer term investors are likely to require more significant developments before changing their medium term outlook on the gold price.

Dr Bernanke’s testimony before Congress tomorrow may be a key event for markets. After a significant rally in the US Dollar, any move by the Fed Governor to hose down speculation on the timing of a Fed exit from QE could see the currency sold leading to further support for gold and other commodities.

Investors will also focus on the latest RBA minutes to be released today. The large sell off in the Aussie Dollar against the $US has been a key change since the Board’s last meeting. Against that background investors will be looking for any comment in the minutes to indicate the extent to which Aussie Dollar strength influenced the last month’s decision to cut rates and may lead the RBA to adopt a wait and see attitude in coming months now that the currency has declined.
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