The World Loves Gold
Sometimes I cannot help but smile at the markets. Remember last December when Gold declined to -1,550 oz.
If you were following the market along with most analysts commentary, you remember the apocalyptic tone of the pundits. Sell your Gold now was the recommendation, it is in free fall, sell!
Some were saying that there was no floor to the price, and 500 could be seen shortly. All bunk and if you following Shayne's and my commentary, both technical and fundamental we said buy Gold on the dips.
Now, we are getting very different advise from the analysts. Gold put in a bottom, tested it and headed North into February where Gold is at + 1,700 oz a + 9% gainer since 31 December.
Gold may well be the story of 3 distinct investment vehicles and that is a problem for investors/players.
One is that of a commodity. Commodities like Crude Oil, Grains and even OJ, are supposed to trade largely on supply and demand with bit of speculation. When Iran threatened to cut off Crude Oil to the EU, the price of Crude Oil went up. When a few days of cold weather in Florida damaged the Orange crop, OJ futures went up.
Commodity traders understand price action like that, but Gold responds North/South when supply and demand stories break.
Getting Gold out of the ground is difficult, but we rarely hear that as a reason why Gold has hit such high levels in the recent past.
Gold also acts as money. We have all heard of the Gold Standard and although there is not enough Gold in the World to ever run the World's economies on such a system, it still reacts as a currency.
Recently, the US Federal Reserve announced that it would keep interest rates at near Zero through Y 2014. As soon as the news broke, Gold rallied.
Last Gold acts as a stock. The textbooks tell investors that Gold is a good way to protect capital in a falling market making it a hedge for traders.
Stock pickers have written books about how a well-diversified portfolio should have Gold as a holding to protect against stock market downturns, but Gold does not always act that way.
Since October Y 2011, Gold moved in the direction of the stock market making it an ineffective hedge. So, here are the Q's what made Gold shift its behavior in October, and if there is an answer to a Why Q, does it now act like a high beta stock instead of a commodity?
The many faces' of Gold make it hard to hold, many experts believe that investors should have Gold as an equal weight holding. Many experts forecast the price of Gold, along with reasoning as to why Gold will go in a certain direction, the truth is that no one really knows.
During the past few months when Gold starts to fall, the Gold Bulls quickly become Gold Bears and when it rises some are Gold Bulls again.
Some investors, Warren Buffett for instance, advise people not to buy in to something they do not understand, and although Gold might have a lot of upside, it is difficult for even the most seasoned investor to figure out.
For that reason twice weekly on LTN I write a comprehensive Technical and Fundamental report on precious metals, Watch for it and learn about Gold if you have a keen interest. We believe that Gold has a place in a balanced investment portfolio. Stay tuned...
Paul A. Ebeling, Jnr.
Paul A. Ebeling, Jnr
Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.
Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels. www.livetradingnews.com