Looking at the big picture for gold, both fundamentally and technically, we are at a very important crossroads for both gold and silver.
Gold recently bounced up from its December lows this month on renewed safe haven buying as QE3 possibilities came back to the table, but then experienced a large drop today down to the $1,566 level following more Europe troubles and stalled job growth in the U.S. Despite this setback, as long as the December lows near $1,536 continue to hold, we may currently be at a very important juncture for both gold and silver.
Whenever Europe or the U.S. looks vulnerable, especially in the jobs area, it quickly fuels investors' emotions. In addition, we all know that Bernanke and all of the other monetary policy makers worldwide are constantly being pressured to help the ailing economy. This is why the markets bounced up after their sell-off. And as we have discussed in prior postings, any liquidity infusion tends to be very bullish for gold.
The big picture continues to point the way up, however. The global debt crisis along with record low interest rates are a bullish factor for gold. Take a look at the chart below (courtesy of adenforecast.com)...
Here we see gold price above and then “real” T-Bill interest rate below it - since 1967. When the real T-Bill rate is negative (below zero on the chart) it means that rates are providing a negative return, as adjusted for inflation. This is bullish for gold because there’s no competition. Notice that the two major bull markets in gold happened while real interest rates were mostly negative.
Even though gold peaked in September and it’s been declining for nine months, the gold trend is still up, regardless of the currency it’s traded in. Further, gold has been stronger than the other precious metals and gold shares, especially since last year when Europe began flaring up.
Yet another good sign for gold has been its underlying strength as the U.S. dollar has moved higher. Normally, gold prices would have a very strong inverse relationship to the dollar. Dollar goes up, gold goes down. And vice versa. But recently, gold held above its December low, when the dollar index skyrocketed to an almost two year high. This show of strength in gold prices tends to support a renewed gold bull in the near future...
As for demand, she also remains bullish. Central banks continue to be active buyers and have been purchasing bullion at the fastest pace in FIVE decades in 2011. According to the World Gold Council, they will likely purchase a similar amount this year - reports show that central banks have indeed continued buying during weakness this past month.
Now that all of the fundamentals seem to be lined up for gold to make a bullish comeback, what about the technical side of things? Here, I repeat, is where we find it rather important that gold remain above the December low of $1,536. Once gold rises above past its 65-week moving average at around $1,635, it will then truly be in bullish territory.
Gold would then have some breathing room to rise to its next resistance at the $1,700 level and then again at the $1,800 level. This $1,800 area will be a much more difficult one to surpass since the very same level governed a major top in prices last November.
Should the yellow metal actually make it past $1,800, gold could then jump up to its record high near $1900. From there it would be smooth sailing since investors will jump onto the 'momentum wagon' and we will actually have a very good chance of seeing explosive action towards, and past, the $2,000 level.
So what does all of this mean for you investors out there? Well for one, it means keep an eye on the $1,536 December low. Secondly, it means keep an eye on bullish territory past $1,635.
And thirdly, it means that after today's major selloff, you may already have a major buying opportunity that may not repeat itself the rest of this year, should gold follow the technical path I laid out above.
Stay in the game, folks! There is still plenty of profit to be made during all of this Euro-'drama' and fickle U.S. 'QE-talk.'
Be safe, be wealthy and above all else, be happy.
Legal Disclaimer: The author has made every effort to ensure accuracy of information provided, however, Leland National Gold Exchange, nor any other affiliate website, nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Leland National Gold and all of its affiliates, agents and associative entities do not accept responsibility or culpability for losses and/or damages arising from the use of this publication.