Gold Retreats From Highs, But Worry Keeps it Elevated

by on January 27, 2014 4:10 pm BST

Gold pulls back from $1,279.8 an ounce today after it has rallied on worry in the equity markets about the emerging market sell-off. Currently down $3.40 per ounce, or .26 percent, gold is being supported by the 72 EMA; and it is likely that the precious metal will remain elevated as long as fear of the unknown remains.

The vast decline in the Argentinian peso last week, upwards of 16 percent over three days, sparked fear in emerging markets. Investors pulled capital from emerging market funds, and they began to worry if Argentina would default on their balance of payments and if it would create contagion. In 2001, Argentina defaulted on a record $95 billion in payments which catapulted the nation into a long recession.

Emerging market fears are also exacerbated with the assumption that the Federal Reserve will issue the second round of tapering in the amount of $10 billion. The reduction of liquidity is beginning to take its toll on risk sentiment. Kelly Teoh, strategist at IG Asia Ltd., noted that gold has seen a push since the beginning of the year. “Gold’s momentum was already on the upside and the emerging-markets selloff adds to the fuel,” Teoh added.

Silver is up a meager seven cents, and the price action has lagged gold’s rally. Traders should look into the silver/US dollar correlation. They tend to be a close inverse of each other, and vested parties may be selling silver in an attempt to prop up the US dollar.