Gold Has Resumed Its Glitter
BEING STREET
SMART
by Sy Harding
Gold Has Resumed Its
Glitter!
November 11, 2011.
Gold has been almost as volatile as the stock market since
August. After becoming overheated in July and early August, it plunged $340 an
ounce to its low of $1,592 in late September. In one brief period in September
it collapsed $214 an ounce in just four days.
Not surprisingly that cooled off the excitement and euphoria
of the previous two months. The sudden plunge pushed the popular expectation
that gold would reach $2,000 and $2,500 an ounce within weeks into the
background. It had investors paying more attention to George Soros’ assessment
of last spring that gold was in a bubble that would end badly. And it was enough
to have investor sentiment for gold became quite bearish.
However, much of gold’s problem in August and September
seems to have been the result not only of its overbought condition, but of the
CME Group raising its margin requirements for holding gold contracts, by 22% in
August, and another 21% in September. The higher margin requirements forced
traders to either come up with more cash to hold their positions or cut back on
holdings.
Once that pressure was off gold began
to rally again.
Meanwhile, on the intermediate-term charts
all gold had done was become overbought above its 30-week m.a. average in the
July/August excitement, and pull back to retest the potential support at its
30-week m.a. again. That retest is looking increasingly successful.
What I’m liking about gold in addition to
its positive appearance technically on the charts is that with the previous
euphoric excitement for gold cooled off, it should have room to run to new highs
before investors and the media get caught up in it and become overly excited
again.
Meanwhile, the return of uncertainties in Europe has had
money flowing out of the euro and into the U.S. dollar, driving the dollar
higher. If the uncertainties in Greece and Italy are now going to move into the
background again, as seems likely with the developments of the last few days,
that flow is liable to reverse, out of the dollar and into the beaten down euro.
Since gold tends to move opposite to the dollar, a turn back to the downside by
the dollar again would be another potential positive for gold.
In the interest of full disclosure I and my subscribers have
positions in gold bullion via the SPDR Gold etf, symbol GLD.
Gold stocks are also beginning to look attractive for a
change. While gold bullion is already up 21% for the year to date, the XAU Index
of Mining Stocks is down close to 10% for the year. Their problem is that they
have more or less been trading with the rest of the stock market rather than
with the underlying bullion.
While the mining stocks may continue to trade more under the
influence of the stock market than the bullion, the stock market is now in its
favorable season. The combination of a rising stock market and resumption of the
rally in gold bullion may have the mining stocks coming out of their doldrums
soon.
Sy Harding is
president of Asset Management Research Corp, and editor of
www.StreetSmartReport.com,
and the
free market blog,
www.streetsmartpost.com.
Editors: You are welcome to quote from this article, or use
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These reports reflect
our opinions and are based on our best judgment, but no warranty is given or
implied as to their accuracy. Past performance does not guarantee future
performance.
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