Will Gold break 1,000 USD support this year?

Gold is on a downtrend for the whole year of 2015 and the question if it continue to go down is not quite relevant anymore. What we should ask now is whether the support level at 1,000 USD will be broken this year or the next one?

 Currently XAUUSD is traded around the lowest value not only for this year, but also for the last 6 years.

During the current month the price of gold has already decreased from 1140 to 1070 USD per ounce, meaning that the same drop would already bring the price down to the level of no return.

Why is 1,000 USD level is so important?

There are two main factors contributing to the importance of this level. The first one, and in my opinion the most important one, is the psychological aspect of the price. To draw a parallel, we can take a look at EURUSD. Currently it is traded below 1.10, meaning that it is quite close to the parity. Yet people have used to a higher value EUR when compared to USD for already for quite some time. When the places are changed and USD value becomes greater than the EUR value, we could actually expect quite some shift to happen not only in the FX market, but in the whole world. Same applies to the price of gold, although on a lower scale. Traders and producers have got used to a four digit price for quite a long time and crossing the border of 1,000 USD per ounce would simply evoke less and less hope in this asset.

 

Secondly, we have to look at the direct costs of production. When we are looking at top5 gold producers worldwide, China, Australia, Russia, US and Canada, we can see that actually 3 of them are developer countries. This gives us a clue that the cost of product are going to be quite high too. In fact, a few US mining companies have already indicated a possible collapse of production when gold becomes cheaper than 1,000 USD per ounce. Certainly same would happen with Australia and Canada, where the pages can be even higher.

 

In other words, the price movement from 1070 to 995 USD per ounce would be much more impactful than the possible move from 995 to 600 USD per ounce.

What are the forecasts for the rest of 2015?

Gold is quoted against the dollar and the later is expected to grow, hence the price of gold should actually go down. Next to this, the interest rates are expected to go up, as we are currently living in the times of one of the lowest interest rates. This factor certainly contributes towards the investors’ outlook on gold as an investment, if its returns cannot compete with just regular currencies, what would pay back for the risks? It is highly probable that the psychological support line of 1,000 USD per ounce will be still broken in 2015 and this could lead to an even larger decrease in the price of this commodity. Time to go short on XAUUSD.

 

This article is supplied by Nick from Forex Trading Bonus.