Gold reacts to global fundamentals

Source: Dukascopy Bank SA


On Wednesday, the Bank of England announced that it would buy government bonds valued at a total of 65 billion Pounds. The market took in the news as follows - the bailing out of the government will create more inflation and will force the BoE to hike rates even more intensively. As a result a surge of the GBP against the USD caused a decline of the US Dollar index.

However, in a couple of hours the markets realized that the additional hikes by the Bank of England would result in a deeper UK economic decline in the further future. Namely, the International Monetary Fund made comments and explained how reckless the UK central bank and government were. Due to that reason, the situation, asset prices and currency exchange rates retraced back to Tuesday's levels.

On the gold price charts the event occurred as a spike upwards above the 1,660.00 level. By the start of Thursday's European trading, the price had declined to the support of the 50 and 100-hour simple moving averages and the 1,640.00 level.

A move of the price below 1,640.00 is highly likely set to look for support in the 1,630.00, 1,620 and 1,615.00 levels. On the other hand, a recovery of the commodity is expected to encounter some resistance in the 200-hour simple moving average near 1,655.00 and the Wednesday's high at 1,662.75.
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