Here’s a look on gold’s daily chart. After reaching a new high of $1,249.495 per ounce last May 14, gold’s price suddenly dipped sharply because of the tensions that we saw in the euro zone regarding Greece’s fiscal problem over the past week or so. The price of gold, however, rebounded when it got some support from the previous resistance around $1,164.00. As soon as the buying condition at that time turned oversold, investors and traders soon picked the precious yellow stuff up, bringing its price back to the $1,215.00 area. The presence of a bullish divergence, where the price registered higher highs and the stochastics marked lower lows, also suggested a likely turn around.
Since conditions are far from being overbought, gold still has some room left to move higher. Though, it could encounter some hurdle at 2009’s high at $1,226.525. However, if it successfully moves past this level, it could easily aim for this year’s high again. On the flip side, if sellers take control to push the price down, gold could slip towards $1,164.00 once more. I remain somewhat bullish, though, given its present short term uptrend.
Some of you might be asking, “So what?” Unless you’re a gold trader, why would you even care about the price of gold?
Well, gold has a pretty strong tie with the comdolls (Australian dollar, New Zealand dollar, Canadian dollar, and the Swiss Franc). For one, it has about 80% positive correlation with the Aussie. An 80% correlation means than more often than not, when the price of gold goes up, the AUD likewise rises and when the price of gold sinks, well you guessed it, the AUD slips as well. You see, last week’s slide in gold which is highlighted in blue above coincides with the Aussie’s breakdown against the yen and the greenback. If you wanna see my previous post on the AUD, kindly click here. This week’s rally in gold, on the other hand, helped halt the AUD’s decline despite an array of selling pressure from Europe and Korea. So if the price of gold is to go up in the coming days or so, the Aussie alongside the other commodity currencies could at least put a stop on their present decline.
The price of gold also has a direct link to stocks of the mining companies, particularly to those which produces gold. Of course, the revenues of the gold miners would rise up as a consequence of the increase in the price of gold. Sure, the increase in income would not be reflected in their financial statements right there and then but the change in prices would be priced into their shares as the market anticipates the jump in their bottom line.