People’s fascination and wonder for this ‘Yellow Metal‘ never shows signs of fading irrespective of how high or low Gold is trading in the markets. And this is partly due to the fact that people still consider Gold to be a much better investment than any fancy product our fiat money could build. And as we have seen from the Cyprus banking crisis, even “insured depositors” are at risk should things get any worse.
Gold currently is in a downtrend, with prices averaging 1540 (with a further likely drop to 1535/37) for 10 ounces. Refer to the 5 year chart below.
It was only two years ago that Gold prices peaked at 1855 (Oct, 2011) while historically, Gold hit rock bottom at 1300 in January, the same year. If we take an average of the high and low prices of Gold, we are somewhere in the region of 1577 for 10 ounces. At this point it seems like Gold prices are fairly stable and not too far away from its average price.
So what should one do? Is this the right time to invest in Gold or should be waiting for prices to drop a bit more?
For those considering the above questions, there is some good news.
In the daily chart below we have the 200 day Simple Moving Average and the 50 day Exponential Moving Average. As you can see there was a downward (bearish) cross around late February this year. With Gold prices currently at 3 month lows, now would be ideal to invest in Gold if you haven’t already. But a question you might ask is the news and commentary where often you find people saying that Gold is drop even further. Well, it was these very same people who also state that Gold prices could very well top 1700 this year. So what to believe and what to ignore?
The best possible solution for such a dilemma is to look to the technical indicators along with the underlying fundamental economic factors prevailing at this point in time.
Global economic policies do not paint a pretty picture
Take the US for example. Most recent economic data is pointing to a slow down during the first half of this year and this isn’t something new, but has been cyclical for most part in history. Unemployment rate showed some progress but looks like its stalling at the 6 – 7% region. This basically means that the Fed’s monetary easing will continue to happen, despite the small rhetoric we see every now and then from one of the regional Fed chiefs.
If you look to the Eurozone, it is evident that the Euro prefers to flirt with crisis more than anything else. With the 17 nation currency bloc deep in recession, the only way for the Eurozone to come out of the crisis is probably with a lower exchange rate and an overhaul of its banking system. Not to forget, bring back confidence to the consumers especially in regards to the banks after last month’s fiasco in Cyprus. As bailouts continue to spread from one country to another, what’s common is the harsh austerity measures imposed by the lenders, “the Troika”.
Buy Cheap, Sell High
The basic facet of “trading” is to buy a commodity cheap and to sell when its high. In our current perspective of Gold, this couldn’t be even more true. Investing in Gold when prices are low could probably be the best investment one could make and would leave the rest who invested in Gold when it was at $1600 fuming with envy.
Sure, there is still a bit of the downside move left for Gold and don’t be surprised if prices touch the $1530 region. But when you put this into perspective with the technical indicators, they all point to a bullish run (although still nascent) in the near future.