Top Gold Market Analysis

CNBC can give two answers to this question based on where commodity prices are:

• If they are up, it means they are in a bubble and the bubble will burst soon, so obviously you are better off investing in stocks and
• If prices are down, it’s better for you to stay away from them. Just look at the heavy sell off in silver.

There are many forces behind gold prices. Dollar appreciation, investment demand, other commodities prices, and world events and uncertainties. Eddy Elfenbein worked on a simple way to calculate and foresee gold price movements. It is based on real interest rates (nominal interest rates – inflation rate). When real rates are below 2% gold will rise at 8% per year for every percentage point drop in real rates and conversely the metal price drops at the same rate for higher real rates.

This method predicts higher gold prices as the real rates are negative and the fragile economic recovery postpones raising rates.

CEO of Goldcorp, Chuck Jeannes, predicts the decade long gold bull run to continue for a few more years as supply and demand fundamentals indicate. No plans to hedge the production despite Goldman’s recommendation.

Is gold going to outperform silver from now on? Dave Kansas of WSJ thinks so. He argues that while both share the same fundamentals like hedge against inflation, currency debasing, fiscal chaos and uncertainties around the world, gold has a better chance to outshine silver. One reason is the divergence between these two, “silver seems to have taken on a more manic stripe, while gold has retained a degree of restraint. It is that divergence that argues for looking at these two metals differently.”

The volatility in silver is something that a lot of people can’t handle. When I first invested in silver, I was focused on hour-to-hour and day-to-day movements.  As such, the volatility in silver was the cause of a ton of stress, even if I traded the moves well. Now, with a little more experience, I am less concerned with day-to-day movements in silver. Believe me, there is logic to my change in perspective. Silver is prone to extreme moves, and in extreme moves, classic momentum indicators and technical tools are pretty useless. At overbought levels, common sense coupled with a longer term perspective is far more valuable.

Gold and silver’s recovery in recent days proved to be temporary, and further falls were seen Wednesday (sharply in silver) prior to a tentative recovery overnight and then there were more falls again Thursday morning. The euro has stabilized after recent sharp falls, and euro gold at €1,050/oz remains comfortably above €1,000/oz after a period of correction and consolidation. Euro gold looks like it is set to break above record highs of €1,072/oz (12/28/10) and target €1,100/oz as the European debt crisis deepens.

While gold is at $1,500 an ounce, Kinross Gold and Jaguar Mining hit 52w low today. Is this an opportunity to go long with them? or in fact these are the proof that the best way to invest in gold is to buy physical?

Investors buy gold mining companies and hope for the leverage they are supposed to provide over gold prices. But these companies like any other companies face operating issues that include: