What is gold saying about the Australian dollar?

Gold could be breaking out according to Goldman technicians:

Gold has finally spiked higher above notable pivot resistance 1,268-1,279 where the market had stalled since late-January.

The area encompasses a number of previous highs/lows since Aug. ’13 as well as the 100-dma. This has opened up risks to the 200-dma at 1,306).

To put things into context,the market has not been above this particular moving average since Feb. 8th last year (just over a year ago).

In short, it will be a very important level to watch how price action develops around it.

I won’t profess to be a technical whizz but any breakout thesis at this point looks pretty vague depending upon where you draw your trend lines. Here’s the long term weekly:

It could be a big double bottom and breakout, it could another dead cat bounce, it could be a monkey’s uncle!

I’m more interested in asking what gold is saying about macro prospects and the Australian dollar and there are two theses that I can see. Gold is a direct proxy for US monetary instability so is its rising telling us that Janet Yellen is going to slow the taper? Tim Duy wraps it up nicely:

Janet Yellen made her first public comments as Federal Reserve Chair in a grueling, nearly day-long, testimony to the House Financial Services Committee. Her testimony made clear that we should expect a high degree of policy continuity. Indeed, she said so explicitly. The taper is still on, but so too is the expectation of near-zero interest rates into 2015. Data will need to get a lot more interesting in one direction or the other for the Fed to alter from its current path.

…Her disappointment in the [employment] numbers raises the possibility – albeit not my central case – that another weak number in the February report could prompt a pause. My baseline case, however, is that even if it was weak, it would not effect the March outcome but instead, if repeated again, the outcome of the subsequent meeting. Remember, the Fed wants to end asset purchases. As long as they believe forward guidance is working, they will hesitate to pause the taper.

…Yellen reiterates the current Evans rule framework for forward guidance, giving no indication that the thresholds are likely to be changed. Jon Hilsenrath at the Wall Street Journal interprets this to mean that when the 6.5% unemployment rate threshold is breached, the Fed will simply switch to qualitative forward guidance. I tend to agree.

Bottom Line: Circumstances have not change sufficiently to prompt the Federal Reserve deviate from the current path of policy.

So gold may be rising on the chance that the Fed will be forced to slow taper in April but there is little corroboration of this in broader debt and forex markets with Treasury yields again climbing and the US dollar not falling.

But gold could also be rising because forward guidance is working. That is, the perception of monetary instability expressed in the gold market may have shifted from QE to a long term failure to raise interest rates. This can also explain the rally in stocks.

Regardless, neither of these is especially good for Australia in that both outcomes will put upwards pressure on the dollar. For us, it would be far better if gold were continuing to sell off.