Direxion Shares Exchange Traded Fund Trust has recorded decent gains in the last two weeks following the spectacular recovery in gold prices. You’ll remember that gold recorded its worst quarter of the year in the third quarter when it lost more than 4.83% in the spot price while losing more than 5.82% in the year-to-date period as at the end of the Sept. quarter. Gold ETFs were not left behind in the rally lifted all the players in the market.
The rally peaked last week when the yellow metal marked a 6.9% increase in three weeks to peak at $1,191.70 on Oct 15 up from a closing price of $1,115.20 on Sept. 30. It doesn’t take much analysis to deduce that gold has recovered and that the market can expect to start seeing a testing of previous resistance levels as the rally continues. Yet, it doesn’t appear that gold would have a smooth ride as investors start taking profits. Gold for Dec. delivery was down 1.05% to $1,175.10 per ounce this morning.
All eyes on the Fed
The rally seemed to have stalled last Friday when the profit-taking selloff began in a move that saw gold dropping 0.4% from previous gains. Commerzbank commodity responded to the decline saying “We attribute this to profit-taking after the price reached a four-month high of a good $1,190 just shortly beforehand—especially given that the price rise was driven largely by speculation, as the [Commodity Futures Trading Commission’s] data show.”
Friday’s decline confirmed previous views that the price of the yellow-metal is closely aligned to how the Fed acts in the current drama playing out about the raising of interest rates. When the Fed said it was almost ready to raise interest rates, the yellow metal took a plunge as investors started readying their funds for interest-yielding assets.
When some members of the board hinted that the Fed was being cautious around interest rates, the yellow metal started a rally. A Fed FOMC meeting is due in two weeks and gold investors are already taking profits off the table before the Fed introduces further volatility into the market.
A key but ignored gold mover
As much as the market keeps an eye on what the Fed is thinking, another key factor that affects the price of gold and the Direxion Shares Exchange Traded Fund Trust . Gold is sold in U.S. dollars and a strong dollar usually makes it expensive for buyers with other currencies. Mark Zeptner, MD, Ramelius Resources notes “You don’t wish ill on the economy but a high dollar is probably the worst thing for gold… “If it was really strong again, or back to parity, there would be a lot of operations struggling”
If you have invested in gold or the Direxion Shares Exchange Traded Fund Trust , you might want to pay more attention to the Forex markets while the rest of the bullion markets are fixated on the Fed. The strength of the dollar is a bad omen for the yellow metal and weakness in the yellow metals speaks of better days ahead for gold.