Gold has had been rallying since March low 2010

On March the 3rd 2010 I wrote in Gold is still solid - a buy on IMF intervention (Europe), that there was a market rumour that the IMF would help bailout out indebted countries by providing loans to Spain, Greece. As we know now the close to 1 Trillion bailout from the EU/ECB and IMF to keep the Europe markets liquid occurred on the 10th May 2010 and the market reaction thereafter, please refer to The EU/ECB bailout package will send Europe into a inflationary style depression. (update 1).

Gold hit a low on the 25th March 2010 at 1086.20 falling from the 2nd March 2010 high of 1137.40. The rally took off from the 26th March at 1088.85 to 1237.00 (12th May 2010). The current gold price at 1237.63 is an all time high. So the analysis that I made on the 3rd March was correct (refer to link) gold retraced back from it's 1137.40 as it became oversold on a daily chart, entry points for gold buys were indicated in the period leading up to the 26th March rally.

Several factors are at play with the gold price, 1. one we still have a lot of risk aversion in the markets on short term plays. 2. Excess liquidity and low to 0% interest rates on US dollars and now the ECB will print money (buying bonds from European banks and loans EU banks at a discounted rate). So on a long term play, both major central banks, the US federal Reserve and the European Central Bank are now stuck in a money printing dilemma as bond yields on indebted EU countries continue to rise, the Euro currency (EUR) value will decrease rapidly. This could be seen when the EU revealed to the market the 1 trillion dollar bailout of European banks, the day after the announcement (11 May 2010) the EUR immediately was sold again closing at 1.26 after the ' bailout announcement' high of 1.30 (10 May 2010), please refer to chart:



Both aspects mentioned are supported of the gold price, regarding risk aversion and devaluation of the EUR. The other major supportive aspect of gold, is a diversification away from the EUR from sovereign funds, particularly out of Asia, namely China.

If the Asian goverments decide to dump the EUR, we may see an increase in gold holdings to offset the diminishing value of the EUR. The USD is currently on a risk averse buy and supported by the Federal Reserve ability to print a global currency. The USD dollar could come under major strain if the US faces a debt problem as Europe has, this is an inevitability and may be on the cards in the next few years, or sooner if the US cannot reign in spending.

Gold chart:

*Note the Take Profit line at 1,167.93 Supports for gold appear to be plentiful @ 1227 down to 1200. Entry buys at those points. Currently gold looks a little overstretched on a daily



* MEC.research doesn't give investment advice, trade at your own risk