Aussie Rate Cut Puts Further Pressure On Gold (GLD)

Stock market bulls have eased off the throttle a bit in recent days as last week’s lackluster employment report reminded investors that while the housing market may have turned the corner, the labor market recovery remains anemic. To top it off, Fed Dallas official Fisher reminded investors in a speech on Monday that policymakers will need to scale back on bond repurchases because it is unhealthy for markets to keep rising on the notion that stimulus will always be readily available [for more commodity futures news and analysis subscribe to our free newsletter].

On the commodity front, with the exception of crude oil, metals and agriculture prices remain largely suppressed across the board thanks to a strong U.S. dollar and lackluster growth in China. The recent rate cut by the Reserve Bank of Australia plays a major role in the world of precious metals for two reasons.

First and foremost, a weakening Aussie dollar has historically led to lower gold prices because Australia is a major producer of the yellow metal on the global stage. Second, the rate cut showcases that policymakers overseas are quite uncertain about the country’s economic outlook, which has been hurt by weakness in the mining sector coupled with China’s slowing growth rate. While a grim outlook should translate into increased demand for safe havens, gold prices haven’t been able to take advantage because inflation fears are almost nonexistent and the yellow metal is also battling with rising U.S. markets, which continue to attract investors from around the globe [see 5 Commodity Trading Mistakes You Could Be Making].

Chart Analysis

For a technical perspective on Gold’s downtrend, consider the SPDR’s Gold Trust (GLD) one-year daily performance chart below. GLD remains in a downtrend as evidenced by lower-highs and lower-lows since the start of 2013; furthermore, notice how this ETF has failed to summit the 50-day moving average (blue line) in every instance this year. GLD appears to be gearing up for another leg lower after its most recent failed attempt at conquering the 50-day SMA.

Click to Enlarge

With both fundamental forces and worrisome technicals at hand, we anticipate for gold prices to slide lower in the coming weeks and re-test the $1,200 level. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.

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Disclosure: No positions at time of writing

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