Gold prices have been on the defensive for some time now, although the gold bulls are showing some signs of life recently. The price of gold retested its swing lows in the $1183 area during the night session recently before popping higher throughout the session. While no one can not say with any certainty if a bottom is in fact in place, this is noteworthy for a few reasons:
- Bearish sentiment in gold and precious metals had reached what some consider to be a bearish extreme. When one has read about gold lately, much of the material that has been printed has been about how gold is likely to go lower. Many reasons have been cited for this prediction including the notion of rising interest rates, higher equities and a stronger dollar index. Certainly some if not all of of the reasons cited for gold’s weakness have a great deal of merit. Markets are markets, however, and when everyone gets on one side of the ship the ship may capsize. In the case of gold, there may simply not be enough bears left to drive gold prices lower from here-at least not in the short-term.
- The Commitment of Traders report recently reiterated the above point as the report showed that large speculators had the smallest amount of net long positions in quite some time (Since last December we think.) The fact that everyone is selling and no one is buying lends itself to selling pressure drying up at some point-and perhaps that point has arrived.
- The last time that large specs held such a small net long position, gold prices proceeded to rally off the December bottom and in the process completed a double bottom on the daily chart. In fact, the last time gold tested the $1185-$1200 area on the downside, prices rallied sharply to nearly the $1400 per ounce level.
- Stocks have starting seeing volatility again…The last couple of weeks have been tumultuous for the equities market. As with gold, no one can say with any certainty that a top is in for stocks, however, the market was due for a pullback, perhaps even a correction. This pullback or correction now appears to be upon us, and this could potentially lead to higher gold prices as uncertainty increases and investors potentially seek alternative asset classes to put money to work in.
- Interest rates are falling again. Investors appear to be a lot more skeptical about economic growth at this point and that skepticism can be seen in bond prices. In addition to the fact that rates are falling, the Fed last week said in its latest meeting minutes that short term rates will be staying low for some time to come. The Fed cited concerns about a weakening global economy and a stronger U.S. dollar.
- The world is still full of geopolitical risk. In addition to conflicts such as Ukraine and Hong Kong, the world is now also dealing with an ebola crises. Are these issues enough to drive buying in perceived safe havens such as gold? Perhaps yes perhaps no.
Stocks and the dollar will likely continue to be the primary drivers of gold. Should stocks continue to weaken and exhibit increasing volatility, then gold could potentially benefit. Either way, the gold market had gotten oversold and will possibly need to overcome that oversold condition before another leg lower if that proves to be the case. In the meantime, we could potentially see a sharp rally in gold that could take gold prices higher by $100 or more in the near term. The gold bulls have a lot of work to do to overcome the technical damage that has been inflicted on the yellow metal, and gold will likely remain a seller’s market until the bulls are able to prove otherwise.
Today we honor those who lost their lives on 9/11/2001 and we honor the countless heroes who worked so diligently to put the pieces back together. 9/11 touched the lives of many, and we must never forget. We pray for healing for those affected by 9/11, and we stand united. God Bless America
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There are many potential reasons to own gold. Some of these reasons can make sense and seem very reasonable, while others seem to be a lot more far-fetched. In this post, I wanted to kind of break down some simple reasons that in my opinion may be good reasons to buy gold, silver, or other precious metals. Again, these are my opinions but I think they represent a simple line of thinking that may be useful for those considering gold ownership or precious metals investments, or for those who have already started to buy gold. To me, there many potential reasons to own gold but here are what I feel are the simplest reasons to own gold:
- Gold and precious metals can add much needed diversification to an overall portfolio. This means an allocation in gold or precious metals-not putting all of your money into these assets. Because gold and PM’s do not usually exhibit a correlation to stocks or bonds, they may potentially be useful in a portfolio with the potential to reduce overall portfolio volatility-after all, that’s what diversification is all about.
- Gold has been considered a store of value for thousands of years. Gold and other metals have a long history of being considered a store of value. Gold can be transacted the world over, and its price is the same all over the world. I do not expect gold’s status as a store of value to change anytime soon. In addition, gold does not carry any counter-party risk.
- Gold and other precious metals are resources of limited supply. The planet only holds so much gold, silver and other natural resources. While I am not an economist, I do believe that buying gold or other natural resources that exhibit rising demand in the face of limited supply may be wise.
- Gold may provide a degree of protection against inflation or a falling currency. While I cannot say exactly what effect, if any, inflation or depreciating currency values may have on gold or precious metals, I believe that gold prices may benefit in such scenarios. I could be wrong..
- WHAT IF……..The biggest reason I like the idea of buying gold is for all of the what ifs.. There are far too many to list here in this short post, but I think that gold and precious metals ownership can potentially provide one with a degree of comfort. I like the idea of owning physical gold in case I need it! I also understand that gold prices could rise-or they could fall. I understand that an investment in gold could lose value. While I certainly would prefer the price of gold to rise if I am buying it, I accept and understand that I cannot see the future-and that the price of gold could drop. That being said, I do not believe in worrying about the price of gold. I am more of a believer in having good reasons to buy gold that one believes in-and then letting the market and the laws of supply and demand take care of the rest. If a gold investment loses value-so what? I still have the physical gold if I need it! I think this is also why diversification is so important. Never put all of your eggs in one basket. A small allocation in gold or precious metals I believe can potentially give one some piece of mind but at the same time not cause one to worry excessively over the price of gold or other metals. One must be willing and comfortable to accept that prices may fall and one can lose money buying gold and precious metals. I believe one can, however, take comfort in the fact that they own the metal and have it if needed. One should thoroughly examine their own financial situation and have and believe in their own reasons for owning gold or precious metals before purchasing.
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I strongly believe that we are heading into another financial crisis which could be even worse than the last. Baby boomers are aging and most do not have nearly enough saved for retirement. The National Institute on Retirement…
FOMC minutes show Fed to complete tapering by October. Rates to stay low for an extended period.
From Marketwatch.com: Fed plans To end bond purchases in October
Gold prices are moving higher today before the release of the latest FOMC minutes. Gold is up over $8 per ounce as of this post and is hovering just below the April highs. The April highs in the $1331 area appear to be some formidable resistance-and if the gold bulls cannot take out this level soon we could potentially see some liquidation by gold longs. Watch the gold market’s reaction to today’s FOMC minutes here:
It would seem that the summer doldrums of trading may already be upon us. The markets have been relatively quiet, and the news flow also even seems to have quieted down a bit. The release of the Fed minutes today will quite likely be the data highlight of the week. Fed Chairwoman Janet Yellen has previously reiterated the idea that the economy still requires the Fed’s assistance. While anything is possible, we would expect that today’s minutes will simply be more of the same. The Fed will likely continue to get out of the bond buying business while pledging to hold rates low for the foreseeable future. This could potentially be bullish for precious metals.
It is difficult to imagine gold and silver falling off dramatically from current levels given the current geopolitical landscape, however, anything is possible. The bulls are maintaining a slight technical advantage, however, we feel that the gold bulls must be able to extend prices to the upside out of the current trading range and do so in the very near future. Should the bulls be able to breach last week’s high on a closing basis at the $1333 level as well as the high reached on July 1 around the $1334.9 level, we could see gold rise sharply and do so quickly. This could potentially put the $1354 area in the bulls site. A breach above this level could see a test of the $1400 level in short order. On the flip side, gold may see near term support near Friday’s low of $1312 and then again at the $1300 level. A break below this level could potentially set the stage for a significant decline.
The gold market has been under bearish pressure once again lately. The market recently broke some key support in the $1280 area, and thus far has not recovered. The market has, however, thus far held smaller support in the $1240 area. The gold market simply appears to be lacking any real bullish catalyst right now that could help the metal begin to stage a meaningful rally. While this can certainly change quickly, it would seem that for now the path of least resistance in gold may continue to be lower. We could be in for another test of the $1200 level-and should this level give way the price of gold could potentially go significantly lower. Sub $1000 gold becomes a real possibility….
Let’s examine some of the current headwinds facing the gold market:
- Higher stocks continue to take their toll on gold and precious metals. Although the equity rally is looking a bit more tired lately, there is no telling when or where the stock rally may end. It is quite possible that gold will stay under pressure until such a time that investors start really looking to reallocate assets.
- The Fed. The Fed looks set to continue on its current course of removing its stimulus measures as the economy strengthens. While interest rates may in fact be kept at very low levels for some time to come, it would seem that many precious metals investors see the writing on the wall with regards to rates.This notion of stimulus removal and the eventuality of higher rates brings us to the next factor.
- Dollar Strength. The greenback has been holding firmly above the $80 level and is threatening further upside. A breach of overhead resistance at the April highs of around $80.77 could send the dollar sharply higher. The ECB is meeting tomorrow and it is widely expected that Mario Draghi will announce some type of quantitative easing to combat a slowing economy and deflationary pressures. Should this prove to be the case, it could weaken the Euro further and thus boost the dollar. This has the potential to really weigh on gold and silver.
While there are certainly other factors at play right now, these are some of the biggies affecting bullion currently. The fact is that stocks continue to move higher into new all-time-highs territory, and the economy continues to show signs of improvement. The data stream has seen some rough patches but all things considered the trend seems to be toward ongoing improvement. Markets and investors are looking forward to Friday’s non-farm payrolls data at this point to try and gauge the strength of the labor market. The labor market has remained a cause for concern for investors, but a good number on Friday could potentially send stocks soaring and keep the pressure on gold and silver prices.
Gold prices initially were weaker following this morning’s non-farm payrolls data but eventually reversed course, caught a good bid, and moved sharply higher as gold shorts covered and bargain hunters entered the market. As of this post, gold has reclaimed the $1300 level, and has put in an outside day on the daily chart.
Non farm payrolls came in way above expectations with the Department of Labor reporting that the U.S. added 288,000 jobs in April while the unemployment rate ticked sharply lower to 6.3%. Consensus estimates were looking for an addition of 215,000 jobs and a slight down tick in the unemployment rate to 6.6%. Stocks were initially higher, then sold off, and are now higher once again albeit minimally. Gold came under pressure as the dollar index rose following the data, but both ended up reversing course as the morning wore on.
Gold held the support in the $1280 area, and it is likely that this led to a decent amount of short covering and also bargain hunting following NFP. Silver has also reclaimed the $19 level and appears to be moving higher on short covering and some fresh buying. If the gold bulls can keep prices higher for a close above the $1300 level today, it could fuel additional bullish momentum to begin next week.
Also likely fanning bullish flames in gold and silver today is the potential escalation in Ukraine. Ukraine is currently undertaking military action against pro-Russian separatists, and reports have indicated shots being fired. Markets have thus far largely discounted the ongoing crises in Ukraine, but one has to wonder at what point investors will get more anxious and go into risk-off mode.Until some type of permanent resolution is found in Ukraine, gold may have a bit of a floor underneath prices as investors remain somewhat skittish. Should violence increase, we could see an even stronger bid in precious metals as investors seek refuge from risk assets.
First resistance in gold may be seen at last week’s highs around $1306 and change. An upside breach of this level could potentially lead gold prices to the $1320 area in short order. Near term support in gold prices remains at the $1280 area.