Gold finds lower highs

The price of an ounce of gold continues to fall in a bearish trend. The prospect of higher interest and the end of tapering has largely been to blame. Anyone looking to trade gold should consider the old adage “the trend is your friend” as there is little reason to see a bullish reversal.

At the last meeting of the Federal Open Markets Committee (FOMC) meeting, FED chairwoman Janet Yellen said the tapering programme would end at their next meeting in October after QE was reduced by another $10bn to $15bn. This puts an end to the easy of the easy money the market has become accustomed to over the last four years. The next step is for interest rates to rise and there is plenty of speculation as to when this will happen. The market consensus is for Mid-2015.

The prospect of higher interest rates directly affects gold as the yield of treasury assets becomes more attractive than holding metals. Inflation hovering close to the 2% target rate, which is why we have not seen a definitive timeframe on rate rises. Yellen has given mixed messages, saying that stimulus will remain in place for “some time” and that rates may rise faster than expected. The FED has raised their own median expectation of interest rates for the end of 2015 from 1.125% to 1.375%, which is the only definitive number with regards to interest rates.

It is easy to see why gold has slipped into a bearish trend and as above: “the trend is your friend”. In this case we have seen the trend tested several times with only a slight false breakout. This was on the back of news the US had begun air strikes against ISIS militants in Syria. This should halt the march of ISIS and decrease the risk of the conflict spreading further, hence why the breakout was false and gold has fallen.

The RSI has returned from an oversold position to a very neutral one, meaning it is now has room to move back into oversold, giving the price room to fall lower. The price at current is sitting just under the trend line, meaning we could see a rejection of it at any time. A rejection will likely test the year’s low of 1208.08, with further support found at 1198.71 and 1187.18. Look for these levels to act as exit points for a short trade. A breakout will likely find resistance at 1226.53, 1242.10 and 1257.96.

Speculation of an interest rate rise in the US following the end of the QE programme has led to a fall in the price of gold. The bearish trend is looking rather solid and it would pay to go along with it rather than bet against it.