Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Are Gold Bugs Sweating Bullets Over February Price Action?

Commodities / Gold and Silver 2013 Feb 28, 2013 - 07:08 AM GMT

By: Eric_McWhinnie

Commodities

It was not exactly a lovely February for gold bugs. Between talks of a great rotation into risk-on assets, and confusing language from the Federal Reserve, the precious metal experienced heavy-selling pressure to reach new multi-month lows. However, gold investors may not be sweating the decline like some expect.


In late February, the price of gold dropped below $1,600 an ounce to its lowest level since July, and even trigged the headline-grabbing death cross status, a bearish technical term for when the 50-day moving average crosses below the 200-day moving average. While multi-year high equity prices have been promoting riskier assets, the decline was aided by the latest Federal Open Market Committee statement creating fear that the central bank may end quantitative easing programs sooner than expected.

Headlines hit publications across the board touting the weakness in gold and questioning the 12-year bull market. Goldman Sachs, the bank that recommended clients sell Heinz shares before the announced buyout by Warren Buffett, added to the pessimism in gold by slashing its price targets. The bank now has a three-month target of $1,615 per ounce, down from $1,825. The six-month and 12-month targets were also cut to $1,600 and $1,550, down from $1,805 and $1,800, respectively.

The over-whelming wave of negative sentiment has not been completely unjustified, as managers and other large speculators recently decreased net-long positions in gold contracts and options by 40 percent, the most in more than five years. However, when everyone is on the same side of the boat, it is usually best to run towards the other side. This contrarian line of thinking applies to many kinds of assets, especially gold.

Gold’s recent pullback is not the first correction it has seen in its historic bull run. At the beginning of the financial crisis in 2008, gold fell from $1,000 to $700 per ounce, while silver plunged from $21 to $9 per ounce. In 2006, gold stumbled from $725 to $570 per ounce and silver fell from $15 to $10 per ounce. In both cases it took the precious metals more than a year to fully recover, but the sell-off provided buying opportunities for patient investors seeking to diversify their portfolio with a no counter-party risk hard asset.

In the immediate short-term, a contrarian stance on gold has already been successful. Gold has bounced from last week’s low of $1,569 an ounce to climb back around $1,600. On Tuesday, the precious metal logged its best day of the year, as Ben Bernanke delivered the Semiannual Monetary Policy Report to Congress.

The Fed Chairman reiterated the central bank’s pledge to keep interest rates ultra-low until “at least as long as the unemployment rate remains above 6.5 percent.” He also signaled more bond-buying by defending quantitative easing programs and said the FOMC will continue with purchases until there is “substantial improvement.”

Bernanke added that the benefits of bond-purchases outweigh the risks associated with the market intervention. “To this point we do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery and more-rapid job creation,” he said.

Despite worries about the Federal Reserve ending its loose monetary policies in the near future, Bernanke provided an outlook that still has the central bank propping up financial markets. This reminds investors that in the bigger picture, nothing has truly changed, and the financial landscape going forward will likely be very supportive to higher gold prices, but that does not mean pullbacks will be not be seen along the way.

As legendary commodities investor Jim Rogers warned in December, “Gold is having a correction— it’s been correcting for 15-16 months now— which is normal in my view, and it’s possible that the correction is going to continue for a while longer…gold on any kind of historic market basis is overdue for a nice correction.”

For more analysis on our support levels and ranges for gold and silver, consider a free 14-day trial to our acclaimed Gold & Silver Investment Newsletter.

By Eric_McWhinnie

http://wallstcheatsheet.com

Wall St. Cheat Sheet : Only days after the S&P 500 crashed to the depths of hell at 666, the Hoffman brothers launched Wall St. Cheat Sheet: one of the fastest growing financial media sites on the web. Like a samurai, our mission is to cut through the bull and bear shit with extraordinary insights, a fresh voice, and razor-sharp wit. We provide the highest quality education and information for active investors, financial professionals, and entrepreneurs.

© 2013 Copyright Eric McWhinnie - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Eric McWhinnie Archive

© 2005-2022 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