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Spot Gold Analysis 20 Oct 2010

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Spot Gold 20 Oct 2010

The spot gold price sold off sharply yesterday, along with many other metals in the commodity market, such as copper and silver with crude oil also reacting to the news that China had surprisingly increased its interest rates by 0.25% – news which surprised the markets, driving the US dollar higher as a result.  Moreover,  the long awaited correction in spot gold duly arrived with a wide spread down candle which closed below both the 9 and 14 moving averages on the daily gold chart.  The question is now, of course, whether this now represents a fundamental shift in sentiment or is merely a short term correction.  From a fundamental perspective a rise in Chinese interest rates, whilst interesting, is hardly a sentiment changing event and the only reason for the reaction was that the news was not scheduled and therefore caught the markets off guard.  Had this been a scheduled announcement and released as such, then the market reaction would have been more muted.  As such we can therefore assume that the status quo will be reinstated shortly with the dollar falling lower in due course and commodities regaining yesterday’s lost ground as investors see an opportunity of buying into the market at lower prices, which appears to be happening already in the gold market, as we trade off yesterday’s lows at $1340.50 at time of writing.  From a technical perspective we need to see a break and hold back above the 9 day moving average which currently sits at $1356.90 and once clear of this level then a re-test of the all time high of $1386.82 per ounce will become increasingly likely.  Despite yesterday’s sharp pull back the longer term moving averages remain firmly positive and in due course this will be seen as a temporary pull back in the longer term bullish trend.

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