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Gold Outlook Still Bullish in Long Term, Mixed in Near Term

October 29, 2012 at 21:12 by Vladimir Vyun

Gold challenged this year’s highs at the beginning of this month but was continuously retreating since then. What can traders expect from the precious metal in the future?

Over the longer term, analysts remain bullish. Central banks across the world refer to monetary easing as a way to spur economic growth and that is bullish for gold. The Federal Reserve is most notable for its quantitative easing (QE) programs, making some analysts worry what the central bank will do in case of slowing economic growth, or even recession, if it maintains exceptionally accommodative policy at the present time, which is not bad for the US economy. As David Einhorn, the President of Greenlight Capital, said:

If the Fed is willing to deploy this new set of desperate measures in these frustrating, but non-desperate times, what will it do then? We don’t know, but a large allocation to gold still seems like a very good idea.

Other positive factors are also present, including purchases from central banks that attempt to diversify their reserves. But even in the bright long-term pictures one can see some unpleasant spots. Economies of China and India, two major consumers of the precious metal, slow, reducing global demand for gold. India is a particularly bad case as the overvalued Indian rupee added to the negative impact of struggling economy, reducing consumption among the Indians to a great degree.

Over shorter term, the outlook is less clear and analysts’ opinions are mixed. This week, US nonfarm payrolls will be released and that important data should have great impact on the performance of gold. Yet it is hard to predict not only the actual values in the report, but the market reaction to it. The payrolls are expected to be better than the last month and that should be positive for the market sentiment and, as a result, for gold prices. But a positive reading may spur speculations about less accommodative policy from the Fed and that would be not very good for the metal. Such outcome is less possible now, after the US central bank announced the third round of QE (which many market participants call “QE-forever”), but it cannot be ruled out. The presidential election will occur next week, but its impact on gold is even harder to predict.

All in all, gold will likely trade in a range, moving sideways (as it was basically doing last week) unless some major event happens. Traders should beware if the metal will fall below the $1693 level as it is considered to be an important resistance level and in case of a breakout prices will likely move further down.

If you have any questions and comments on Gold today, use the form below to reply.

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