Forex Market Analysis provided by eToro
Gold rallied yesterday to as high as 1187$ an ounce as risk aversion sparked by the Greek debt spiral which still looms.EU members have sealed the bailout deal for Greece on Saturday agreeing to an unprecedented €110 billion Euros of bailout from the EU and the IMF. Nevertheless the long waited action failed to ease investors concerns. Investors look for a credible fiscal plan from Greece with deep budget cuts that can reduce its debt burden however with past experience with countries such as Argentina and with protest from the Greek public investors hang a big question mark on the ability of Greece to actually implement budget cuts. Moreover investors see the real risk for the Euro zone in the ballooning deficits of the key EU members. Italy and Spain are at the top of the debt list holding more than 1 trillion dollars of debt. Currently Italy and Spain still enjoy a stable demand for their debt but FX investors fear that if one of them will enter a debt spiral no one will be there to foot the bill and investors will have to absorb the losses. This can potentially bring the debt crisis to new levels very similar to the deterioration after the Lehmann collapse. Currently FX players still wait in the sidelines waiting for governments to present a credible plan to reduce deficits to a sustainable level .since most developed economies such as US, UK and the EU have a gloomy fiscal outlook, investors turn to their alternative, Gold.
Midterm Gold sentiment could ease- Although Gold still enjoys a robust sentiment as the attractiveness of the debt market deteriorates Gold currently trades very close to its 2010 record at 1187$ raising the risk that the proximity to the 1200 level could bring Gold bulls to trim their profits and wait for dips. The 1160 level where the latest Gold rally was ignited posses a good support for Gold price and a dip towards that level could reignite the appetite for the metal.
Long Term outlook Cautious-The long term performance of the metal very much depends on the ability of Governments to tackle their deficits. Market nervousness over sovereign debt could ease for the time being as investors wait for Governments to present their budgets for the next year. However long terms since budget cuts are politically unpopular this could prove to be a difficult task and might bring the debt market into further deterioration. In such a case Gold could very quickly surpass its historical record of 1226$ and move towards the 1300-1400 zone. If however budget cuts for the next year will be in place and then the bullish structure around the 1200-1226 zone could quickly become a double top pattern which will switch the trend to bearish
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