After being sold heavily since November Gold might finally be in place for a wave of buying. In our last review on Gold we proclaimed that for long term bets on the metal it is best to wait for the tightening threat to pass. Well what has changed? In the Last two weeks two important occasions occurred the Fed announced a hike in the discount rate for banks and China raised it reserve ratio for banks.
Both are clear tightening moves and both are known to have critical effects on Gold. China as one of the World’s biggest Gold buyers and since Gold is traded in Dollars any change in US policy affects Gold as well. The classic response for such a tightening scenario is a downgrade in inflation expectations and another round of Gold selling. But what happened instead was interesting; Gold actually posted its second weekly gain. True that the instability in the Forex market and the expected robust growth from India and china (the largest Gold buyers) is a good reason to buy Gold but eventually Gold is mostly affected by interest rates. The fact that Gold was able to climb after the tightening move from china and the Fed signals above all that Gold players are presuming the tightening threat has been realized for know. And when tightening takes a halt and rates are still at record low then Gold might just gear in for a nice rebound.
Gold in recent days
