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Are Gold Prices Near a Bottom?

Commodities / Gold and Silver 2013 May 23, 2013 - 04:07 PM GMT

By: Money_Morning

Commodities

Diane Alter writes: It's been a tumultuous couple of months for the yellow metal, which has investors asking: Are gold prices near a bottom?

There's hope this price plunge is ending.

Year-to-date, gold is lower by 17%. But after seven trading sessions where gold prices slumped, on Monday June gold futures gained 1.4%, or $19.40, to $1,384.10. Contract prices bounced as much as 2.4% after sliding 2.1%.


Now technical analysis points to a rebound in the yellow metal to $1,500 in June, following the "double bottom" hit Monday.

A double bottom involves three moves: a drop, a rebound, and another drop to the previous low. Chart watchers deem the pattern as bullish. A classic double bottom reversal typically marks an intermediate or long term change in trend.

"This shows that gold is probably ready to climb," Matthew Schilling, a commodity broker at Chicago based R.J. O'Brien told Bloomberg News. "The reversal was proof that we have found a bottom."

In just 10 minutes Monday, in the wake of gold's rally, holdings in exchange-traded products backed by gold soared by $1.7 billion.

Fueling the buying were comments from Moody's that a downgrade of U.S. debt is likely if the government fails to get its finances in order in 2013.

To get more info, we asked Morning Morning Global Resource Specialist Peter Krauth if he thought a gold-price bottom was near.

"I thing gold is somewhat oversold," Krauth said. "Yesterday's price action, when gold shot up by about $40 within four hours seems to reflect the thinking that it's due for a bounce."

Krauth said this year's gold price correction was expected.

"After a 12-year bull market with no true correction like that in 1974-1976 time frame, one more is due. I would not be surprised to see gold eventually correct a bit further before making a final bottom.

"That being said, if it were to turn up and stay above $1,550, then it's likely this correction would be over," he continued.

Gold Prices Near a Bottom

Gold prices got their first big hit this year on April 15, when the yellow metal plummeted 9.4%, the steepest drop in 33 years. Coupled with the prior session, gold lost $200 an ounce in just two days, officially putting gold in bear territory.

The 9.4% plunge was so unusual, Howard Simons of Bianco Research noted, the odds against such a move were 20 trillion to one-"a lower probably of occurrence than randomly selecting a [particular] $1 bill out of a pile of singles representing the U.S. national debt."

But as Krauth explained, the gold price pullback is a healthy one.

"Gold was setting us up for some kind of correction," commodities expert Jim Rogers told Money Morning in an exclusive interview last month. "Gold needed a correction - it still needs a correction - and I hope this is the proper correction gold needs. Then gold - somewhere along the way - will make a bottom and we can all join in the bull market as [it] goes higher and higher."

Money Morning Capital Wave Strategist Shah Gilani said Monday that gold's recent slump has more to do with trading than losing its fundamentals.

"I don't trust the downtrend," he told FOX Business' Stuart Varney. "I think there's maybe a little bit more to go, but I think gold down here is a great buy, and I would certainly be buying it down to $1,200, $1,100 all day long."

For more on Jim Rogers' analysis of gold prices in 2013, check out the full interview here.

Source :http://moneymorning.com/2013/05/21/are-gold-prices-near-a-bottom/

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