Gold Bounces Off Four Month Low

Wednesday, 04 June 2014
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Published in Gold Investing
Gold Bounces Off Four Month Low PhotoDune.
Gold bounced off four month lows in midweek trading, gaining $2.50 to $1,247.16; and silver was up $0.07 to $18.87. Gold is down for the week and the month, and the softness in prices is even starting to bend the 200-day moving average into negative territory.

Fiscal-Cliff

The upward movement in equities, combined with softness in gold prices, has boosted the Dow/Gold ratio to 13.4. Silver has gotten hit pretty hard, with the Silver/Gold ratio rising to 66. Overall it’s been a dismal month for precious metals. Although, it should be noted that summer months are traditionally not the strongest performers for precious metals.

One of the qualities of good analysts is they don’t like to be wrong, and it grinds on my record that gold managed to hold prices under $1,300. On top of that I ripped on estimates of $1,200 summer prices for gold by Goldman Sachs. At $1,247 we’re splitting the difference, with the short-term advantage still in Goldman’s favor. Unless something happens to stem the bleeding, I may have to admit Goldman was right before the end of the month — but I’m still not ready to throw in the towel just yet. There’s still a lot of potential upside pressure in the precious metals market.

Right now is the optimum time to catch up on your percentage of wealth in hard assets.

It’s not hard to be bullish on precious metals prices at these levels. Physical demand from India has been soft during the transition to the newly-elected government. The demand from India is likely to remain soft until the government can communicate the new import rules for gold. If that plan is favorable to gold, and is articulated before festival season in the fall, we could see demand for physical gold from India turn positive very quickly.

Another factor impacting gold is the equities markets. There is little debate at this point that stocks are overvalued; not as bad as the end-of-the-world patter you hear on the financial entertainment channels, but still too high. At a minimum, I expect a flattening or leveling over the next 18 months. Smart stock market investors are rebalancing their portfolios by selling off some of the high flyers and shifting those assets into less volatile sectors. Combined with bargain prices on gold and silver that we haven’t seen since 2010, right now is the optimum time to catch up on your percentage of wealth in hard assets.

Many are pointing at increased stability in Ukraine as another reason for soft gold prices, but how much does anyone really trust the Russians? Putin lied through the entire invasion of Crimea and destabilization of eastern Ukraine. So now Putin, a former lieutenant colonel in the KGB, is suddenly remorseful? You can drive from Moscow to the border with Ukraine, so who’s really buying that Putin suddenly went soft? That story is not over yet, not by a long shot.

Probably the simplest reason I’m bullish on gold and silver at these levels is that it’s a good deal. Imagine being able to roll your investment purchases back to 2010, could you do a better job this time? Most people could with that kind of an advantage. Well, here you go, that exact scenario on a platter. Silver Eagles are a bargain right now, at prices we haven’t seen for nearly four years, and before the big spike in prices.

For gold, any quality bullion product will serve you well, whether it’s coins or bars. At these prices you can’t really miss.

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