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Gold Bullion – Are the stars alligned for a major breakout?

Commodities / Gold and Silver 2010 Sep 11, 2010 - 12:15 PM GMT

By: David_Urban

Commodities

Historically, the argument against Gold was that it provided no yield to investors.  Stocks, bonds, and cash all provide some sort of yield so Gold as an investment has no merit. 

But that view appears to be changing, with volatility in the equity markets, bonds now providing little or no yield (witness the US treasury yield curve and IBM's latest offering), and money markets and cd's providing scant yields Gold is looking much more attractive as a place to park cash. 


Seasonally, the fourth and first quarters of a year are the most bullish for Gold.

In countries such as China and India which are experiencing strong economic growth Gold is looked at as a store of value.  In both countries imports of Gold are rising as citizens view Gold as lucky and a store of value. 

Recent news out of Europe indicates market participants are increasingly worried about the stress tests performed on European banks as they are increasingly being viewed as not that stressful at all. 

In the US the economy appears to be slowing into a 1-2% growth range, with a budget deficit of over a trillion dollars, new spending proposals, and the Federal Reserve instituting a Zero Interest Rate Policy (ZIRP). 

So while we look over the world we see two major areas with slow growth, Europe and the US, and investors rushing to Gold as a safe haven to protect against problems in the banking sector and at the sovereign level. 

In Asia strong economic growth is allowing investors to diversify their wealth by purchasing and giving Gold as gifts.

While we may be near a major resistance level, Gold has provided investors with a safe haven in times of trouble.  Since its rally from the 2008 lows Gold has seen rising support levels as investors buy on any dip. 

Technically, the weekly charts have six straight weeks of upward price movement and may make a slight pullback at this major resistance level.  Silver is also outperforming Gold as well which is often a sign that a pullback in both markets is forthcoming.

Investors would be wise to buy Gold on any dips and be ready to allocate some capital before the next leg up starts.

Next week:  Gold Equities – Where is the Bull?

By David Urban

http://dcurb.wordpress.com/

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David Urban Archive

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