Gold prices at the “sweet spot” at $1,200 level

Friday, Jun 19 2015

With no major data releases from Australia, traders are more focused on commodity prices. Gold prices, which surged $25.20, or 2.1%, to settle at $1,202 an ounce on Comex, the highest close for a most-active contract since May 22, definitely serve as a support for Aussie. The $1,200 level also marks a “sweet spot” for gold producers in terms of production costs. To be sure, the rally was impressive. It was the largest single-session point and percentage gain in about five weeks. But the fact that prices have rallied above $1,200 is a milestone in its own right. Some analysts see the metal end the year around $1,350 an ounce.

However, what Australia and Aussie traders should be particularly cautious about at the moment is state of China's economy. For years, Chinese growth rates have been a byword for extremely fast economic development, and the phrase is still used that way.

Unfortunately for China, the country doesn't actually have "Chinese growth rates" anymore. And pretty much nobody is expecting them to return. China has headed up the emerging-market credit splurge since the 2008 financial crisis. While the recessions in advanced economies threw some cold water over borrowing in the developed world, emerging markets have been racking up debt at quite a speed, with China first among them.

The combination of low inflation and lower growth is a poisonous cocktail as far as paying off debt is concerned. If the Chinese economy takes a bad path, it will not cause ripples as large as the 2008 crisis. But it will mean an economy of nearly 1.5 billion people is left permanently smaller than it otherwise would have been — probably a much weaker market for Western goods, and a less prosperous world in general.

Aussie is currently being traded few points above 0.7760 level. Pair is likely to find support around 0.77 handle and resistance above 0.7810 area. There will be no major data releases in the rest of the session.

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