Oversold Gold Likely To Continue The Upward Trend -

Oversold Gold Likely To Continue The Upward Trend

Sep 25, 2018Jeremy ParkinsonFinance, No picture0

In January, the XAU/USD pair was at 1,310. The price moved up to a YTD high of 1,366 and then started moving lower. In August, it reached a YTD low of 1,160 and then started to move up. Today, the XAU/USD pair reached a high of 1,200.

At the same time, the dollar index started at 91 and fell to 88. It then moved up to a YTD high of 96.81 and then started to fall. It then fell to a low of 93.36.

The price movements show the relationship between the price of gold and the dollar index. When the dollar weakens, the price of gold strengthens and vice versa.

This weekend, Barron’s magazine wrote an interesting piece on gold. For starters, Barron’s is one of the most influential investing magazine in the world, read by influential leaders and investors. The article found that in many metrics, the price of gold was currently undervalued. For example, the article compared the amount of gold that could buy one unit of the Dow. The magazine wrote:

One way to measure it against stocks is a comparison with the Dow Jones Industrial Average. It effectively takes 22 ounces of gold to buy one unit of the Dow, which finished on Friday at a record 26,743. The most recent low in that relationship occurred in 2011 when the Dow/gold ratio dropped to 7.8. Then, gold was near its all-time high of $1,900 an ounce.

When other metrics in the valuation of gold are used, the result is that at the current price, and with inflation moving up, there is a likelihood that gold is undervalued.

Yesterday, a big acquisition in the gold sector took place when Barrick Gold announced that it will acquire Randgold, in a deal valued at more than $6 billion.

Tomorrow will be the most important day in gold trading this year. This is because the Fed is expected to release its interest rates decision. The Fed will hike rates but the most important thing will be the forward guidance to the decision in December. Recent comments by some Fed officials have cast a doubt into a rate hike happening in December. This has lowered the probability for the hike to about 60%.