Short Term Gold Forecast
Global Panic and Revised Gold Price Forecasts
August 10, 2011 Update
In our last update we mentioned that foundation for higher gold is solid but we could not predict that within a short period of time gold prices hit our 2011 target prices of $1,750 an ounce. The yellow metal, on a steep uptrend, reached $1,800 today, more precious than Platinum. This prompts us to raise the target price for this year to $1,950 an ounce. As global uncertainty is increasing and Asian gold buying season is just around the corner, we are heading toward $2,000 gold and profit taking will kick in before hitting that level.
In the gold price chart below we have marked the important events in U.S. supporting gold prices. These include raising the debt limit, credit rating downgrade, and latest Fed decision to “only” keep the rates low to at least mid 2013, keeping the QE3 card in his pocket for later down the road. Fed mentioned U.S. economy is contracting which translates to more quantitative easing. But for now Bernanke left it to politicians to fix the mess they created playing their political games.
Keep in mind that the steep price increase translates to higher chance of correction. Gold prices are trending up and using the blue price line as support.
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In the past few days investment banks revised their gold price forecast. Bloomberg survey of the four most accurate precious metal forecasters points to $1,938 Gold in 2012.
HSBC raised its average price to $1,590/oz for 2011 and $1,625/oz for 2012. They need to revise one more time.
Goldman Sachs raised the 12-month forecasts to $1,860/oz.
Commerzbank raised the price forecast for 2011 and early 2012 to $1,800/oz. Already there!
JP Morgan raised its forecast of gold price to $2,500/oz for 2011
$1,600 Gold Target
July 13, 2011 Update
Since the last update, gold prices dipped lower to $1,480 an ounce support level as greenback found some support and Greece found some temporary relief to its unavoidable default. The short-lived dip brought an opportunity to go long on gold as recommended on the gold trade section.
Rising concerns on the euro-zone sovereign debt crisis are supporting gold prices. Portugal took a big blow as Moody’s downgraded its debt rating to junk, and as expected, Ireland was targeted next and then Italy. Italy will be the most important battleground for euro in our opinion. We’ve just started hearing more on the serious issues the country is facing. Expect gold prices to rise as more investors pay attention to the news and seek safe-haven.
The latest job report tells us that the question is not Will there be QE3? But how many quantitative easing we are going to see before the system breaks down? Another QE round is unavoidable but each time Fed eases money, the action will have less effect on the economy and will send gold higher and higher. Following the dismal job report, Bernanke hinted QE3 and said that Fed is examining ways to stimulate growth if the economy weakens. The hint came much sooner than we thought and underlines the deep trouble our economy is facing. Such monetary easing will be highly bullish for gold and gold stocks. We forecast a $1600 gold soon and see gold stocks rise rapidly.
Is $1,600 gold too high for investment demand? It will be a new record high for the metal but if you adjust it for inflation the price will still be lower that the Jan. 1980 high.
Gold market is becoming very volatile and new information can lead to rapid price changes. Make sure to sign up for our free newsletter on the right sidebar and check out the latest happenings in the gold market.
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A Near-term Bearish Outlook
June 13, 2011 Update
A dead cat bounce or whatever you like to name it, in near-term dollar is set to appreciate and that will put pressure on gold. QE2 is coming to an end at the end of the month and it gives the greenback a good reason to rally, knowing that euro is in a worse situation.
The metal had a nice steady run toward old highs as we expected and discussed in the last update, but despite all the fundamentals supporting a new high, like continuing issues surrounding Greek debt and the euro zone, Japan’s renewed nuclear crisis, and the disappointing May unemployment report, and the gloomy outlook of the U.S. economy, gold did not advance to a new high. Now it looks weak and is reversing the trend.
That makes us near-term bearish on gold as quantified by the score on the right hand side. If prices fail to hold the $1,500 an ounce, the downtrend in gold prices is confirmed. Will the gold market crash? No need to panic as the fundamentals indicate a weaker dollar and a higher gold, mid- and long-term. A correction can be healthy for gold; as Rogers say, it ensures the gold bull run stays intact. QE3 is on the horizon but needs to see some negative economic data to come out. U.S. debt is hiding behind the Greek chaos but sooner or later needs to be dealt with. James Bullard says a U.S. “technical default” is the biggest risk to the world economy. More economic analysis on the Market page.
Gold stocks are in a terrible situation. Is it not paying enough dividend? Bad management? Old school mine-site operation? Falling with other equities? Whatever the reason is, not even one of them is near its all time high. Is this divergence a good buying opportunity? That’s what we thought in the last update. Now that the gold outlook is weak and equities are falling, we think it is best to wait for the extremely oversold situations. We will be monitoring them closely in the gold stocks page for buying opportunities.
Real Finance, a new commodities newsletter, has greatly provided us with their gold trade recommendations, managed money positions, and how to trade gold. That page will be updated regularly with new materials and trade ideas.
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Time to Buy Cheap Gold Stocks?
May 24, 2011 Update
To follow up with the last update, silver did correct substantially and pulled gold lower but the yellow metal held the support at the $1,480 to $1,500 an ounce area as expected. This is very bullish for the yellow metal since the commodities correction and the rise of the US dollar did little to gold prices.
The investment demand from China and India is solid and now that the European zone debt crises are surfacing again gold has a good chance to climb to a new record high in near future. Keep in mind that that the market has priced in the end of the Fed QE2 and any fresh talks on money printing will be highly bullish for the metal.
This can be a good opportunity to buy physical gold or cheap gold stocks.
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A Silver Top? How About Gold?
April 26, 2011 Update
Many are calling for a top in silver prices. Technically a $48 silver is dangerously overbought in any time frame you look at. The monthly RSI is at the most overbought level in five years. In a short term time frame, technically there is more chance that the metal pulls back than advance, and it usually drops faster than the way it climbs. Silver stocks were leading the downtrend, count that as another bearish sign for the metal. On the other hand short interest is extremely high and normally these situations lead to higher prices as shorts need to cover their postions. Also the drive behind the silver was coming from investors with no or little margin and not speculators. Therefore silver prices may keep climbing up. The trend normally reverses when short interest falls. Having said so, if silver falls off a cliff, it will affect gold prices as well. In a positive scenario for gold, if investors chose to close their long silver positions and move to gold as the gold/silver ratio is at extreme, there will be fresh buying to the metal and a chance to sustain the $1,500 level and a gradual move up.
Gold is technically not as overbought as silver. Fundamentals indicate a higher gold in the coming months. We stick with the $1,750 an ounce target price and use pullbacks to buy in.
In the euro zone, investors know Greece cannot avoid a restructuring and send country’s bond yields higher. Latest figures show the 2 year is at 24.2% and the 10 year is at 15.3%, compare those to 10 days ago. The Irish 2 year is at a new all time high.
The Middle East is all quite now; just kidding! Yemeni President Saleh is followng Mubarak’s footstep and is stepping down. The opposition groups have agreed to share power in a transitional government. Bashar Assad puts military action against his own people, a bad bad decision. US is considering financial sanctions against Syria.
As for the US economy, S&P downgraded the long-term outlook for US debt. Market is set to rise so no news is bad news. Bernanke will be back in picture starting with the press conference tomorrow. Rising stocks gives the impression that no more QE is necessary but we are talking about a market addicted to free money so don’t be fooled. Fed holding rates below inflation means it remains worried about the economy. More on that in the coming days.
$1,450 an ounce Gold
March 31, 2011 Update
In the last update, we discussed three major forces behind a higher gold, the tensions in the Middle East and N Africa, currency intervention, and falling dollar. All have been intensified since and the yellow metal traded higher close to $1,450 and gold mining CEOs made fresh forecasts. Gold stocks like NovaGold followed the bullion and traded higher. Add fear of inflation and debt concerns in euro zone to above and the metal is set for a breakout above the $1,450.
What is blocking a breakout is the excitement behind rising stocks and lack of fresh bids, and illusions of an economy fixed by raising the debt ceiling and more spending.
There are two key levels for investors to watch, the $1,410 and $1,450 levels. Gold will likely form a strong uptrend if prices cross above $1,450, an opportunity to go long for aggressive gold investors. A break below $1,410 signals a downtrend toward $1,340.
We will look for sings Bernanke will give whether the quantitative easing that has greatly fueled this gold bull market will continue past the end date in June. More free money will further press down the already embattled US dollar and will send commodities much higher.
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A Chance to Break Above Old Highs
March 19, 2011 Update
Timing cannot better for gold to make a new high as it carries good fundamentals. There are three strong forces behind rising gold prices at the moment:
Middle East and N Africa
Japan has grabbed the investor’s attention and news headlines recently but the social unrest in the Middle East is still on and it is getting uglier. At least 40 people have been killed, and 200 wounded, as security forces in Yemen launched a bloody crackdown on protesters.
Saudi King fearing people’s uprising will announce the replacement of several government ministers, an anti-corruption drive, and an increase in food subsidies.
As for Libya, it can be more messed up if UN starts a military strike. Increasing global uncertainty is bullish for gold.
Currency Intervention
G7 had to step in and intervene in the currency market to make sure Japan’s Yen does not appreciate. This is another example of governments and central banks controlling and manipulating the value of the paper currencies, bullish for gold as it represents a reliable means for store of wealth.
Falling dollar
Green back has been on a steady downtrend and has broke below its 52 week low. If dollar keeps the downtrend both the yellow metal and stock market will enjoy a nice ride up.
Gold stocks are lagging the gold price and this can be a good opportunity for them to catch up. Both GDX and GDXJ have formed the foundation for a steep rise.
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Upside Potential on The Middle East and North Africa
March 4, 2011 Update
We’ve been covering the events in the Middle East and North Africa in numerous articles like this and this. Mubarak, Gaddafi, top officials in Iran and Arab countries and whoever scared in that region are moving billions of dollars. They don’t use dollars as they are traceable and they can’t use Swiss accounts anymore. Their best bet is to launder the money and buy gold or gold contracts. This will be a strong force supporting the prices of the yellow metal in the coming weeks.
Sustained $100 oil hurts economic recovery and lifts gold to new highs but if the dust settles down, the metal needs to use its hedge against inflation figure to climb up. As for the inflation, for the time being Mr. Bernanke likes to deny it and play with numbers, at best he recently said there is small inflation risk from oil spike. It won’t be small, rising inflation is real and undeniable.
Let's be honest, although Libya is the top oil producer in Africa, it's share of global production is only 2%. It's not like Saudi Arabia or Iran. Speaking of which, according to WikiLeaks, Saudi King once talking to US about Iran asked to “Cut off the head of the snake”. It’s payback time. An Iranian-influenced Shiite takeover and Bahrain unrest are threatening the kingdom. Any development will have a great impact on price of the yellow metal and oil.
If the Middle East unrest cools down, the upside move will be limited at this time by the bullish theme of the stock market as discussed in this article. For a new rally to form, prices need to break above $1,450 as discussed. As you can see sometimes short term forecasts are opposite of what is expected in the bigger picture. If you are looking for a buying strategy based on patience and low risk then read this article.
How Far Will The Correction Go?
Jan 25, 2011 Update
In the previous forecast and later in this article, we discussed how stock market rally is pushing the metal into a correction. News of China’s CPI and US macroeconomic data pulled the metal down 1.9% below the critical $1350 level and took miners especially US Gold (UXG) with it.
Now the US dollar is rising on expectations of an upbeat economic outlook and that will put more pressure on the yellow metal. In the bigger picture, as discussed in the last update, prices will likely head toward $1,250 to $1,280 area. This can be a good opportunity for investors to add to their physical holdings or favorite stocks.
There are 2 major supports on the way if losing momentum continues. First, is the Fibonacci retracement at $1,325 an ounce as shown in the chart below. This is the level metal briefly touched today. There is a good chance gold bounces back a bit at this level as many miners, e.g. Goldcorp (GG), are also at their key technical supports. Fundamentally physical buying is increasing as Chinese are headed into their new year, which begins on Feb 3.
The second support is at the psychological $1,300 an ounce where investors would rush in to buy cheap gold.
Will the correction happen?
Jan 19, 2011 Update
Hedge funds and other large speculators cut their net long positions to the lowest level since July 2009 and position themselves for a correction. The rush of money to stocks, as shown in the chart below, indicates that it is more likely that the trend continues. In fact, it has been kept in place thanks to the falling green back which just hit a fresh 2-month low and increase in physical demand from Asia. A rise in dollar will take gold to a correction.
Tomorrow Thursday, China will announce new CPI numbers. It’s almost certain that Chinese official will act boldly if they fear the inflation is getting out of control. If they raise the interest rates, the metal will likely take a dive and will take miners with it. Buying Put options is one way to reduce the downside risk.
Looking at the gold price chart, the metal is weak, trading below 50 day moving average for some time. Positive news from China and a weak dollar will keep it in neutral state (seekinGold trend rank of 5) or sideways trading. Otherwise, the metal could break the temporary support and trend down toward the $1,280 area.
Until the fresh debt analysis of European countries surface, the metal is weak in US dollars. Also, Fed is determined to keep the market up and that keeps the option of another round of quantitative easing on the table, if needed later on this year.
Jan 9, 2011 Update
In the last update, we indicated that gold has a chance to break into a new territory but on the downside, prices should hold at $1,380. The metal fell to the $1,380 level as dollar rose sharply and optimism rose for stocks. While the yellow metal was susceptible to further weakness, the disappointing job report kept it in place. In the coming week eyes will be on the support lines. If the metal falls to the $1,340 to $1,350 area, as mentioned before, there is a good chance that the selling pressure accumulates and sends the metal to a downward trend in a bigger picture. While our view on gold remains bullish in long term, it will be a volatile market and not a straight line up.
Currently the mood of gold market is bearish and it would be a good idea to take some profits off the table and “wait and see” how the metal is holding up. Some analysts suggest holding core positions and shorting GLD as a hedge against a potential weakness.
Until the fresh news of economic concerns over European countries (Spain?) surface, money flows away from the metal and into the stocks. Look for the investment demand to rise to lift the metal price. In near term, however, dollar has a better chance of climbing.
Technically, gold made a triple top as shown in the chart below. This is a bearish sign and the explanation behind it is that the demand is not sufficient enough to take it to new a new high as it failed twice after making a top. Normally prices consolidate in these situations to regain enough demand to trend up and break the resistance.
Jan 3, 2011 Update
In our last update, we expected prices challenge the support area of $1,360 to $1,370 but the yellow metal barely touched the $1,370 area and used it as a support to trend up and close at $1,421 for the year end. Now, gold has a chance to break the 2 month consolidation with a rise above the $1,430. Many investors are sitting aside waiting for a correction to get into new positions and a break away creates the opportunity and a momentum toward a target price of $1,750 long term.On the downside, prices should hold above $1,380 for a pull back. A much greater pull down can lead to a major correction.
Dec 16, 2010 Update
We expected gold hit new highs and it happened on Tuesday Dec 7 when the metal reached a record $1,432.50 an ounce. The rise came after news of President Obama deal with Republicans to extend tax cuts for two years.
Shortly after, prices dropped in a quick profit taking. We predicted that the upbeat economic outlook and Chinese monetary action would take gold to test the $1,360 to $1,370 support area. The yellow metal has come close to the $1,370 but the real test is ahead of us next week.
As we are getting close to the holiday season and precious metal investors might try to take some profits off their long time winning positions. We expect that the prices challenge the support area.
As for the bigger picture, we are very bullish on gold to make new record highs long-term.
Dec 5, 2010 Update
The fundamentals behind a higher gold is firming as concerns over the financial health of the European Union is rising. Ireland got most of the attention last week followed by Portugal and Spain.
While the situation gave both gold and US dollar the safe haven status, the dollar gave up and started to trend down late last week. Adding to the bullish factors of higher gold is the first Chinese gold ETF.
Technically, also, gold is bullish. As shown in the chart, prices consolidated and broke above. Note that he MACD is showing a bullish crossover and RSI is not indicating overbought. The yellow metal now has the chance to make new highs.
Nov 29, 2010 Update
The troubles with the European economy are not going away. The US dollar is claiming the safe-haven status as Ireland debt and the tensions in Korean peninsula are rising. Now that both dollar and gold are seeing as safe-haven, gold uptrend can be slowed down or take a hit. This will be quite an opportunity in a way! It takes the pressure off the long uptrend and creates a chance to buy gold stocks at better prices.
Ideally, we like to see gold pull down to $1,280 area if a correction comes, before taking off again. Below $1,250, there will be panic selling sending prices down toward $1,000.
On the top side, the $1,500 prediction stays for the year end.
Nov 16, 2010 Update
An early warning was given when the technical analysis indicated a short term weakness in prices and a possible trend reversal. Prices have room to fall further for the following reasons:
- Rumor of Chinese government tightening monetary policy and controlling commodity market speculation
- Increased margin requirements for the precious metals futures
- A stronger dollar
The yellow metal has a short-term support at $1,315 to $1,320 area. If price cross this level the next target is $1,280.
In the bigger picture, the fundamentals behind a rising gold stays strong. With help of a falling dollar and Federal Reserve's second quantitative easing, the precious metal is predicted to hit 1,500 by the end of the year. The Ireland's debt is getting attention of nervous investors. The winner of this war is the dollar-denominated gold and the surprising proposal of World Bank chief adds fuel to the burning dollar.
As mentioned above, the short-term outlook is bearish for gold but the fundamentals of a stronger gold in long term is strong. This can be a great opportunity to enter to new positions.
In the larger picture, the weekly chart is bullish for gold. The metal has a strong support at $1,280 an ounce.
Nov 4, 2010
The much anticipated second round of Federal Reserve quantitaive easing, also known as printing money to purchase bonds, was announced and drove dollar to a nine-month low versus the euro and gold prices rallied to an all time high of $1,393.40 an ounce.
The strong rise of the gold price is a vote of confidence in inflation-hedge investment. A devaluating dollar will further support the dollar-denominated gold. The yellow metal has a short term support at $1,330 and if prices manage to stay above this level the upward trend will continue.
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