morbius glass

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Is Gold correcting (update 1)

Posted by Adrian on February 20, 2008

Gold continues to be the reliable inflation hedge for any portfolio. The forecast correction for gold hasn’t happened as yet, but as stock markets globally lose significant value, indicators like the itraxx point to widespread credit defaults amongst companies, the banks continue to write down huge losses on CDO’s and make a mess of marking down value on mortgage backed bonds (which in turn indicates to the market consensus that a bank is trying to cover up it’s ‘exposure’ to losses).

With the value of bonds, CDO’s, shares and every other complex financial instrument eroding very quickly. Gold is holding it’s own. Oil, in my opinion, will start to trade above $100.00 with dips into the high $90’s becoming less and less, again gold may provide a solid investment against rising costs. The global credit crunch, interbank liquidity issues, the global US subprime exposure, continued asset writedowns from all the world banks and high inflation will continue with ferocity throughout 2008; add also the higher Oil costs – which could resonate as an ‘Oil crunch’ for all economies worldwide.

Gold reached a new high of $946, currently trading against the USD in the range of 945 – 940, between barrier at 912.00, and resistance 936.00. Now trading above the resistance line (breakout), and above the 5 day and 50 day averages (on a 1 day platform). The price has also gone above the top Bollinger band at 930.00.

This would indicate gold is overbought on a 1 day platform. But with current global inflation worries and the US falling into stagflation, gold may continue the rise. A sell off may occur on news that the Fed may pause their rate cutting. This needs to be taken into account.

Trade long, option locked in at price 949.00.

*please note morbius glass does not give investment advice. The following information is for reference only. Trade at your own risk.

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