Is Gold About To Take Off?

Wednesday, 22 August 2012
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Published in From The CEO

As I write today, Gold has settled in to its new high since May 7 -- $1,643 –and the US dollar has dropped to a seven week low.  Significant buy stops were triggered, and a number of investors on the short side were forced out of the market.

While this is certainly good news for gold, analysts will be tightly focused on the 200-day moving average at $1,643.67 perched just above the current spot price.  For these same analysts to get really excited, gold will have to take out its next important resistance at $1,658.86, according to UBS Investment Research.  Still, it’s a promising sign that Gold futures have risen in five consecutive days and that the CRB Commodities index jumped by 1.37%.


HSBC analyst Jim Steel points out that gold prices are also being supported by agriculture commodities on anxieties about a rise in food prices.  According to Steel, “corn prices hit a record high of $8.32 (USD) a bushel following the release of a weekly crop condition report from the Us Department of agriculture.” 

Additional encouraging news from gold comes from Reuters who reports that the Central Bank of Russia has added18.6 metric tons of gold to its reserves.  According to information from The International Monetary Fund, the Russian bank’s reserves now totals 853 metric tons. It should be noted too that reports of central bank holdings represent a good signal of support for gold prices if they drop.

Gold is also profiting from a favorable sentiment for commodities on expectation of an additional stimulus in China, and a more optimistic outlook for growth in the United States.  It’s stronger performance was also enhanced by the news that Greece’s bailout program may be allowed to continue.

UBS’s investment research report suggests that expectations of Q3 might already be built in to gold’s price, and that the current increase is merely a technical one.  If that’s the case, it seems reasonable to conclude that the actual announcement of Q3 might give gold an even greater steroid rush.  As I’ve previously suggested, the Fed is not without its hawks on the issue of quantitative easing, so investors are wary of making very large trades.  Still, professional eyes are fixed on the two-week period following the Fed FOMC meeting on August 31.

You do not need the precise judgment of a professional trader to make a profitable investment in gold right now on your own behalf.  Professionals look for profits in small movements in gold, and therefore many of their judgments have to be based on technical considerations.  It’s hard to go wrong buying gold at the current price for a long-term strategy.  You’re armed with enough historical information.  You know where gold’s been, you know how it can perform, and you’re certainly aware of many of the economic forces behind it.  Let the professionals and the crowds wait for a Fed Q3 decision.  Be your own central bank.  Start accumulating now.

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Trevor Gerszt

Trevor Gerszt has been passionate about gold since childhood. Growing up in South Africa, the world’s second largest gold producer, Gerszt spent his youth collecting gold coins. Surrounded by a family of experienced coin collectors, he gained valuable insight about the precious metal.