It is said that when it comes to investing, you should be greedy when others are fearful. This could not be more true than now. The gold price is expected to rise further despite signs of exhaustion near-term. A recent Reuters poll showed that the majority of analysts believe gold will continue to rally and drive higher for another year or two due to the geopolitical uncertainty in Europe and in North America. In addition, although the US Federal Reserve has committed to a $400 billion bond-buying program that will reduce some global interest rates, currency devaluations can also play a significant role in supporting commodities such as gold prices.
Investors are now looking for alternative investments that can provide a combination of income, safety and growth:-
This is especially true in an era when the Federal Reserve’s quantitative easing (QE) program appears to have reached its limits. The likes of gold, traditional currencies, commodities and real estate have typically been favored because they are considered to be ‘forever’ investments that can deliver steady income while also providing some degree of protection from global financial risk. However, there are risks involved with holding such assets, including potentially experiencing significant price declines and bouts of volatility. Therefore, it is necessary to monitor the performance of these specific investments and act on any underlying changes with consideration for their (expected) returns.
In order to do this, it is important to keep an eye on how both the gold and the dollar price of gold are performing in order to provide a more complete picture of how well certain assets are performing relative to each other. In today’s article, we are going to look at the price performance of both gold and the US$ (USD) against the backdrop of recent developments. The goal is not only to provide a better understanding of fluctuations in these two major commodities but also to gain insight into how they might perform in a wide array of market conditions.
The price-performance of gold and USD (USD) can be used as indicators for gauging asset valuations at various points throughout time. For example, the lows seen at the end of 2013 for gold can be used to describe a period of significant undervaluation in that asset compared with the current levels. Similarly, gold’s resistance levels can be used to demonstrate that certain areas on a chart constitute resistance points that make it more difficult to achieve good returns. A break above these levels could help unlock additional upside in this precious metal, while a break below confirms that there are now low valuations. Likewise, as mentioned earlier, gold and USD (USD) have traditionally been favored as alternatives after other traditional assets have experienced major dips in their prices due to global financial risk.
How do you think gold will perform relative to USD (USD) in the month ahead?
For now, the current levels of both gold and USD (USD) are fairly close to each other, especially given that the US dollar has continued to strengthen vs. most currencies around the world. However, since a break below these level would confirm bearishness for gold prices relative to USD (USD), we can safely assume that it will probably be necessary for gold prices to close below $1162/oz before this is confirmed. Until then, both gold and USD (USD) will remain within the same trading range at current levels.
How do you think USD (USD) will perform relative to gold in the month ahead?
We believe that given the current levels of both gold and USD (USD), it is unlikely that gold will close above $1162/oz, which is a crucial level for the precious metal. As long as the gold price stays above this level, we do not expect a significant change in its relative performance against the USD (USD).
