Today’s Spotlight Market
Gold futures rallied to their highest level in two years this past Friday after the Brexit announcement, but prices have been stagnant over the past several sessions. Gold?s value as a defensive instrument has been a driving force behind the price increase this year. The combination of this being the week leading up to a major holiday along with the uncertainty and choppiness of the currency markets likely has resulted in Gold?s consolidation this week.
Fundamentals
While fear and economic uncertainty have and may continue to provide support for the Gold market, slow growth may put a ceiling in place for precious metal prices. This could curb investment demand for the metal, as slow growth likely will lead to slow inflation. Aggressive central bank action and possible inaction from the Federal Reserve could be seen as supportive for metal prices. The real question is whether or not physical demand for the metal was able to keep up with the first quarter of this year, which saw a sizable jump in overall demand. However, this was due to investment demand for Gold increasing more than threefold, while technology, jewelry and Central Bank demand decreased by a fairly large amount. The rise in prices and demand was essentially a self-fulfilling prophecy for Gold bulls. It will be interesting to see if the trend continues the next time the World Gold Council releases quarterly data.
Technical Notes? -? View Today’s Chart
Turing to the chart, we see the August Gold contract breaking out above resistance around the 1296.50 level. After making an initial surge, prices have traded sideways, resulting in what may be viewed as a flag pattern over the past several sessions. If the pattern is confirmed, prices could test the 1,400 resistance level. On the downside, prices could reverse back lower if the August contract is unable to hold the 1296.50 mark.
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