While investors are wondering about the extent of the gold rate correction from its six-month high, world event evaluation together with technical analysis can give us the best tools for our prognoses.
True as it may be that 2013 is best forgotten, it is unavoidable to make flash backs to last year’s course of gold prices. In fact, the price of gold approached a peak last October marginally breaking the $1,350 per ounce mark, amongst predictions that you would soon have to pay $2,000 or more for an ounce of the metal.
Instead and with no obvious reason gold plunged almost non-stop below $1,100 ( a 20% drop), causing panic to small investors and giving reason to pessimistic analysts to spread rumours of even lower prices, and the end of the gold market as we knew it.
Should we be expecting a similar scenario now? Will history repeat itself and will this correction be of the same size? The answer is definitely not!
World news directly influencing the gold rate
It is not clear what exactly sparked this year’s mini rally, but it is without doubt the Crimea incident that initiated the correction. Obviously investors expected that Ukraine’s ethnic rivalry would have more serious consequences for the country as well as its neighboring EU states and followed the trend of buying gold when suspecting war. After the ceasefire, both sides threatened sanctions against each other, in fact the Ukrainian government went so far as to imply that they would cut Crimea’s water supply, but the truth is that Crimea is now part of Russia and no one seems to worry about sanctions.
Trader sentiment is with the US and the FED’s effort to strengthen their economy and convince major countries – such as gold buying China – to prefer keeping dollars instead of gold in their reserves.
Gold rate and technical analysis
The events in Ukraine created a small “bubble” as prices really had no other reason to break the $1,350 an ounce resistance and urgently needed a correction which, deep as it may be, is by no means surprising. In fact it’s marvelous that prices made such a smooth, straightforward ascent, but we all understand that this could not go on indefinitely and that now that the correction has started, there are no strong resistance points down to the $1,187 low, with the possible exception of the $1,270 double peak in late January.
This by no means suggests that prices will drop as low as that; on the contrary the market seems to be accumulating power well above the $1,300 an ounce mark, and if this stands in the following week, then we’re back in business following the upward trend.
If on the other hand the correction continues, the price will have to drop $120 from its highs (1⁄3 of the gains) before we start worrying about a change in long term trend.
Keeping an eye on world news and monitoring the market through information provided by coininvest.com will help you position yourselves to buy gold at the lowest possible prices.