Gold treads water as confusion leaves markets rudderless

A lack of real direction has helped gold hold onto the ground that it made up over the last week.

Equity markets have, at least for the time being, run out of steam, and equity traders are asking more frequently if this correction is in fact a change in trend. It is a little too early to tell the answer, but the uncertainty hanging over the markets is helping to prop up the gold price. Unfortunately for gold bugs, the last couple of weeks’ disappointing economic data from the US has been taken as an indication that the Fed will maintain its current policy of quantitative easing. Normally, bad news helps in the ‘flight-to-safety' trade, however of late it has actually been counterproductive. Of course, trading sideways is helping the longer-term bulls’ target to break out of the negative trend in which gold has been stuck for the last ten months.

Last night’s comments from Japanese Prime Minister Abe were not seen as sufficiently convincing by the markets, as he was due to announce the third tranche of initiatives that would help turn Japan's economy around and weaken the yen. With this speech being taken so badly, we have seen the yen strengthen against the US dollar, and therefore the knock-on effect of general dollar weakness.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.