Technical Opinion
Gold has been in a long term downtrend for quite a long time now, but some analysts believe it may have set some kind of a bottom at the recent low near the $1,080 level, or at least it is making the first attempt to set a long term bottom. More recently however leading indicators in the market indicated some kind of reversal to the upside, which did happen and is still underway, though it remains unclear whether or not there is strong support from buyers at this stage. The recent buy signal is in full gear right now and it can last at least 25 more calendar days, projecting immediate upside targets for gold at $1,150-60, and higher at the more solid resistance level of $1,250. So sooner or later, as long as the market puts enough consolidation in place, gold price will retest the $1,250 technical support level, and all traders and investors will be watching that closely. If gold price breaks above that level and stabilizes for good, then long term buyers will start buying gold again, including gold bullion, coins and all kinds of physical gold, and the market will continue steadily higher from there on as $1,250 will become support. If however gold price fails to penetrate the $1,250 level, then depending on what the leading indicators show and how investors react at that point, the market may dip lower once again looking to set the long term bottom lower than $1,080, even though it is unlikely to ever drop below the $900-$950 price zone.
The above weekly gold chart shows how the resistance level of $1,250 is seen by traders and investors alike, at this time. Gold can easily rally up to this level even with weak data.
Fundamental Opinion
Gold made its recent lows down to $1,080 driven by poor liquidity and traders considered this as a false kind of decline which had to be wrong, and so far that appears to be the case indeed. Despite concerns about the Chinese economy slowing down and a big reduction in the demand for industrial gold, the precious metal is still in a good fundamental situation. Long term investors are still waiting on the sidelines before starting to buy gold again, as they were expecting to see the final long term bottom setting just below the $1,000 level, but nobody knows for sure if and when this will happen. The market can now rally all the way to $1,250 even without these long term investors, but if the rally falters at that level then they will definitely refrain from jumping in, and this market cannot start a long term solid rally without these long term investors. So it remains unclear as to what exactly will happen, but the decline we saw in gold in recent years is only a correction and we are already at a level which is well below gold’s long term fundamental value. So those who think very long term and do not mind a possible brief decline down to $900 (worst case scenario), can go ahead and invest in gold today, and also buy more later, throughout the current year in case of a sideways market developing. All in all, no matter what happens to China and the world economy gold will start rising again towards its long term fundamental value, which is kind of hard to estimate exactly, but it is higher than today’s levels. The next target on the upside for gold is to test its all time sustainable highs as and when speculators join the rally, so as long as the rally takes place smoothly this time, not going parabolic on the charts, gold could end up going as high as $2,500 in the next few years and as high as $3,500 from there on. These levels may seem too high but when adjusted for inflation even the 1980s high for gold becomes at least $2,300 in today’s money, so the projections are not unrealistic after all.
Investors in gold are largely investors seeking diversification, protection from all kinds of geopolitical and investment risks, as well as inflation hedge. Gold has been a safe investment choice for long term investors, but as the 1980s proved one can still end up losing money, if they buy at the very top, without paying any attention to technical data, and signs that the market may be due for a correction. When gold is rising on the other hand, so does silver and the entire precious metals market, and of course so do all gold related stocks in the stock market, so one can trade or invest in these stocks as well, it does not have to be gold directly.
