Is this a selling opportunity in Gold?

Goldman was out on the wires two weeks back telling markets to sell Gold as the investment bank feels rally is unjustified.

In my opinion the rally is completely justified and may extend even further if central banks continue their madness with negative interest rates. Here is why i think the rally is justified –

  • Safe haven demand – turbulence in the markets, central banks move to uncharted territory
  • Sharp fall in the Fed rate hike bets – Markets no longer expect the fed to hike rates in 2016
  • Central banks on rate cut spree – BOJ moved to negative rates, more to come via ECB

There are also regional developments that are supporting the metal –

  • Interest rate cuts in China and India – The central banks of the top gold consumer nations have already began (PBOC) or about to began an easing cycle and that offers support to Gold.
  • Brexit saga – safe haven demand from UK could come into play. Wires are already reporting major central bank analysts; stating a possibility of UK currency crisis if britons vote in favor of Brexit.

So in my opinion, the rally in Gold is justified and may continue further as except stability in the markets all other factors supporting metal stay intact.

Still, Goldman is saying Sell Gold. In my opinion, gold could head lower from here only if the Fed hints at another rate hike. But, markets do not see another rate hike in 2016. If it has to happen, it needs to happen this month as the closer we move to US election, the lower is the possibility and scope for Fed rate hike.

On technical charts, a case for selling gold might be build up.

Daily Chart – Possible bearish price-RSI divergence

gold

  • Prices clocked a high of $1268.29/Oz levels, which is slightly above $1263 high set in February
  • However, the daily RSI has not formed a fresh high
  • Hence,  if we have a negative candle tomorrow, a bearish price-rsi divergence on the daily chart would be established

To make along story short, I do not agree with Goldman that the rally in gold is unjustified, but I do see a possibility of a technical correction.

Goldman’s call would be a big hit only if Fed hikes in March as that would be an indication the bank is not fooling around after first rate hike and is serious about tightening

 

 

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