Best of the Week
Most Popular
1. Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - Nadeem_Walayat
2.Gold Price Focusing on May Cycle Bottom - Jim_Curry
3.Silver, silver, and silver! There’s More Than Silver, People! - P_Radomski_CFA
4.Is the Malaysian Economy a Potemkin Village - Sam_Chee_Kong
5.Stock Market Study Shows Why You Shouldn’t “Sell in May and Go Away” - Troy_Bombardia
6.A Big Stock Market Shock is About to Start - Martin C
7.A Long Term Gold Very Unpopular View - Rambus_Chartology
8.Stock Market “Sell in May and go away” Study When Stocks Are Down YTD - Troy_Bombardia
9.Global Currency RESET Challenge: Ultimate Twist - Jim_Willie_CB
10.The Coming Silver Supply Crunch Is Worse Than You Know - Jeff Clark
Last 7 days
Natural Gas Setup for 32% Move in UGAZ Fund - 19th Jun 18
Magnus Collective To Empower Automation And Artificial Intelligence - 19th Jun 18
Trump A Bull in a China Shop - 19th Jun 18
Minor Car Accident! What Happens After You Report Your Accident to Your Insurer - 19th Jun 18
US Majors Flush Out A Major Pivot Low and What’s Next - 18th Jun 18
Cocoa Commodities Trading Analysis - 18th Jun 18
Stock Market Consolidating in an Uptrend - 18th Jun 18
Russell Has Gone Up 7 Weeks in a Row. EXTREMELY Bullish for Stocks - 18th Jun 18
What Happens Next to Stocks when Tech Massively Outperforms Utilities and Consumer Staples - 18th Jun 18
The Trillion Dollar Market You’ve Never Heard Of - 18th Jun 18
The Corruption of Capitalism - 17th Jun 18
North Korea, Trade Wars, Precious Metals and Bitcoin - 17th Jun 18
Climate Change and Fish Stocks – Burning Oxygen! - 17th Jun 18
A $1,180 Ticket to NEW Trading Opportunities, FREE! - 16th Jun 18
Gold Bullish on Fed Interest Rate Hike - 16th Jun 18
Respite for Bitcoin Traders Might Be Deceptive - 16th Jun 18
The Euro Crashed Yesterday. Bearish for Euro and Bullish for USD - 15th Jun 18
Inflation Trade, in Progress Since Gold Kicked it Off - 15th Jun 18
Can Saudi Arabia Prevent The Next Oil Shock? - 15th Jun 18
The Biggest Online Gambling Companies - 15th Jun 18
Powell's Excess Reserve Change and Gold - 15th Jun 18
Is This a Big Sign of a Big Stock Market Turn? - 15th Jun 18
Will Italy Sink the EU and Boost Gold? - 15th Jun 18
Bumper Crash! Land Rover Discovery Sport vs Audi - 15th Jun 18
Stock Market Topping Pattern or Just Pause Before Going Higher? - 14th Jun 18
Is the ECB Ending QE a Good Thing? Markets Think So - 14th Jun 18
Yield Curve Continues to Flatten. A Bullish Sign for the Stock Market - 14th Jun 18
How Online Gambling has Impacted the Economy - 14th Jun 18
Crude Oil Price Targeting $58 ppb Before Finding Support - 14th Jun 18
Stock Market Near Another Top? - 14th Jun 18
Thorpe Park REAL Walking Dead Living Nightmare Zombie Car Park Ride Experience! - 14th Jun 18
More on that Gold and Silver Ratio 'Deviant Conundrum' - 13th Jun 18
Silver Shares? Nobody Cares - 13th Jun 18
What Happens to Stocks, Forex, Commodities, and Bonds When the Fed Hikes Rates - 13th Jun 18
Gold and Silver Price Setting Up for A Sleeper Breakout - 13th Jun 18
Tesla Stock Analysis - 12th Jun 18
What Happens Next to Stocks when Russell Goes up 6 Weeks in a Row - 12th Jun 18
Gold vs. Stocks: Ratios Do Not Imply Correlation - 12th Jun 18
Silver’s Not-so-subtle Outperformance - 12th Jun 18
Why You Should Brace Yourself for Big Financial Changes - 11th Jun 18
Inflation to Skyrocket When Fed Reverts to New QE & Interest Rate Cuts - 11th Jun 18
Stock Market Topping Pattern or Just Consolidation? - 11th Jun 18
Study: What Happens Next to Stocks When the Put/Call Ratio is Very Low - 11th Jun 18
G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - 11th Jun 18
SPX Unshackled - 11th Jun 18
When Trump Met Fibonacci And Won - 11th Jun 18
FREE Theme Park Entry with Cadbury's Choc's! Legoland, Alton Towers, Chessington.... - 11th Jun 18
Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - 10th Jun 18
End of the World Stock Market Chart! - 10th Jun 18
All US Homes Are Overvalued - 10th Jun 18
Thorpe Theme Park London Car Park Exit Nightmare - Drivers Beware! - 10th Jun 18
Gold Price Summer Doldrums - 9th Jun 18
How to Prepare for Economic Uncertainty with Gold and Silver - 9th Jun 18
5 "Tells" that the Stock Markets Are About to Reverse - 9th Jun 18
Billionaire Schools Teacher in NAFTA Trade Talks - 9th Jun 18
Land Rover Discovery Sport ECO Mode Real World Driving MPG Fuel Economy - 9th Jun 18
Crude Oil Bullish Weekly Reversal vs. Bearish Monthly Reversal - 8th Jun 18
Fed’s Interest Rate Hike is Short term Bearish for Stocks - 8th Jun 18
The Deviant Conundrum Called Silver - 8th Jun 18
Pleasure Island Theme Park Cleethorpes, Last Day Trip Before it Closed Down - 8th Jun 18
America’s One-sided Domestic Financial War - 8th Jun 18
Debt Consolidation Advice: When and Why to Consolidate - 8th Jun 18
Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - 8th Jun 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

Why Gold is Still a Great Long-term Investment

Commodities / Gold and Silver 2013 Feb 21, 2013 - 03:40 PM GMT

By: Money_Morning

Commodities

Jeff Uscher writes: There are a lot of moving parts to the gold story so let's start with the biggest takeaway: Gold prices are facing only a temporary setback.

Longer-term, as the U.S. Federal Reserve and other central banks begin to wind down quantitative easing and, more importantly, begin to ease interest rates back up to more "normal" levels, inflation should begin to kick in and drive gold up to new highs, making the yellow metal a great long-term investment.


First, though, let's tease apart the various factors that currently are driving the price of gold lower.

QE and Gold Prices
The Federal Open Market Committee is beginning to consider the timing of the end of quantitative easing.

The most recent FOMC meeting explored the idea of ending quantitative easing but keeping the Fed funds rate between zero and 0.25% until unemployment falls below 6.5% and as long as inflation remains below 2.5%.

But the markets are expecting long-term rates to rise when the Fed stops buying Treasury bonds through its asset-purchasing (quantitative easing) program.

The market is assuming that the Fed's purchases are keeping long-term interest rates artificially low.

Once those purchases stop, it is reasoned that long-term rates will rise to where they would be if the Fed had done nothing. As a result, the yield curve has steepened with 10-year rates now over 2.0% and 30-year bonds yielding 3.19%.

Although the yield curve has steepened, it is not really discounting any inflationary expectations. That is especially true, given the looming budget sequester next week.

Yields on 10-year Treasury Inflation-Protected Securities (TIPS) are still negative while 30-year TIPS offer a whopping 0.6% annual, inflation-adjusted yield.

Perhaps gold prices are telling us that since the market is not anticipating inflation for the next 30 years, there is no real point in owning gold as an inflation hedge.

Check Out this Ugly Gold Prices Chart
Although the gold chart is more of a symptom than a cause, gold has broken below just about all of its major supports on the daily chart.

You can also look at the SPDR Gold Trust (NYSE: GLD). GLD's price has fallen below its 500-day simple moving average for the first time since Oct. 22, 2008, at the height of the financial crisis. GLD traded below the 500-day simple moving average until Dec. 9, 2008, and never touched that moving average again until Feb. 11, 2013.

Much has been made of the fact that, in the next day or two, GLD's 50-day simple moving average and the 200-day simple moving average will form a death cross (when the 50-day moving average crosses below the 200-day moving average and both are moving lower) but this is simply a confirmation that GLD is in a down trend. That has been evident since the 50-day simple moving average peaked back on Nov. 23, 2012.

What's more important is that there's support for GLD around the 150 level, which held twice during 2012. If that fails, then the next support level would be at the 200-week simple moving average, currently 137.46 and rising.

The chart is ugly to be sure, but it isn't game-over for GLD.

Unusual Moves in the Gold Futures Market
Perhaps the most likely cause of the recent weakness in gold prices comes from the unusual relationship between the spot gold price and gold futures.

When traders buy gold futures, unless they want to take delivery of physical gold, they must sell expiring futures contracts and roll their positions out to a later month.

Typically, as a near contract approaches expiry, it will trade at a discount to the spot price as selling reaches a climax. This is happening right now to the February contract and there is nothing unusual about that.

What is unusual is that the April contract, where there is no pressure from expiration, went into backwardation Friday. This means that you can make a profit by selling spot gold today and buying a contract to receive delivery of gold in April.

But, according to Keith Weiner, writing for Monetary Metals LLC, what is really strange about this is that the open interest in the April gold contract is rising, which should be pushing the price of the April contract higher.

Weiner suggests that there is a large long silver/short gold arbitrage position out there. If that is true, the arb is getting killed as the gold/silver ratio has risen by 4.3% since the end of January.

In other words, as fast as the gold price has fallen, silver has fallen even faster.

When to Buy Gold
We remain positive on the long-term outlook for gold prices.

As mentioned above, higher long-term bond yields and the end of QE will not necessarily result in inflation.

Even though it sounds counterintuitive, inflation is being held in check by zero interest rates. Once the Fed starts to raise interest rates back toward "normal" levels, that's when we will begin to see the inflationary impact of all the QE that has been dumped into the market.

In the absence of inflation, we turn to the chart. There is strong support for GLD around $150. That seems to be a good entry point for a long-term rally in gold prices.

Gold prices were trading at $1,567.50 an ounce in New York Wednesday afternoon.

Check out our 2013 Guide to Investing in Gold.

Want to know more about gold prices and how to profit from them in 2013? Bill Patalon frequently updates his readers on how to play to gold in his Private Briefing investment service. Find out how to get in the loop here.

Source :http://moneymorning.com/2013/02/20/gold-prices-the-yellow-metals-still-a-great-long-term-investment/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules