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11:03 ACM Precious Metals Analysis: Gold Sinks as Risk Aversion Plagues Marketplace
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Credit deterioration in sovereign debt and disastrous corporate earnings reports triggered a resurrection of the risk aversion trade. Dollar Strength knocked 4% off gold prices Monday, and has since flat lined at $823oz, before its steep drop to $811oz. The momentum gold bulls built last week was wiped out, by signs of more pain to be felt by major financial institutions. From a long-term perspective the appeal for gold is certainly remains, but a clear cut break in the risk aversion trade will be needed before any significant rally will be seen. The technical story agrees with our fundamental hypothesis, -DMI reads 44.41 which is more than twice the +DMI level. A very strong negative trend is building, which may be enough to push prices below $800oz. An excellent hedge for Traders looking to play gold maybe to pick up some dollar denominated FX positions. It may be affective for those taking long gold positions at these levels, to also sell Euro against the dollar. The correlation between the Euro and gold is fair at 0.66, but this relationship is likely to increase with increased risk aversion.
Support 802.68 Current: 810.69 Resistance: 835.40
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