After flirting with a 20 percent bear market correction from its 52-week peak, gold is again on the rise. Will it last?
Weak economic data is fueling speculation the Federal Reserve will debase the U.S. dollar (^USDOLLAR) further by unveiling an extension of monetary easing. Any type of dollar debasement is viewed as fundamentally positive for gold and its strong performance during the past two rounds of quantitative easing (QE) have shown that. But will this time be different?
Although it's gained 3.51 percent year-to-date, the SPDR Gold Shares (NYSEArca:GLD - News) has declined 5.42 percent over the past three months. Each share of GLD represents 1/10 the ounce price of gold bullion.
Seasonally speaking, the historical performance for gold has been sluggish, at least until around late August. The second largest consumer market of gold, India, has just ended its festival and wedding season and demand for gold during Asia's monsoon months is generally lower.
The past two 20 percent plus declines for gold (see table below) were in 2006 and 2008.
More importantly, despite gold's 11-year streak of consecutive gains, it has not behaved defensively this year. If there's any time that gold should be shining, it's right during the middle of a sovereign debt crisis. Also, gold is underperforming other assets like long-term U.S. Treasuries (NYSEArca:TLT - News) and REITs (NYSEArca:VNQ - News) since the beginning of the year.
What are gold's key trading levels?
The ETF Profit Strategy Newsletter via its Weekly Picks, outlined three gold trading strategies designed for individuals with different levels of risk tolerance. One strategy was an income trade that generated monthly cash flow of $1,150.
After GLD fell through its six-month low of $150.34, here's what we said: "If GLD slices right through $xx threshold without any sort of resistance, it could be in for bigger losses ahead. On the other hand, it bounces and holds, it might signal a good buying opportunity."
The Fed's next policy meeting on June 19-20 and any hint of more QE won't necessarily be a slam dunk for gold investors or traders.
Even gold cheerleaders like Jim Rogers are saying it could fall another 40-50 percent in value - especially if India stops gold imports and if Europeans start selling their gold.
All of this paints an uncertain picturefor gold, but here's something that isn't:
Gold's fate will ultimately be determined by whether it is able to hold above support, or begins to falter. The ETF Profit Strategy Newsletter includes the support level that's absolutely crucial for gold's short-term performance along with other key ETF categories.
Date |
GLD Price (High) |
GLD Price (Low) |
Correction % |
4-05-06 |
$71.98 |
||
6-14-06 |
$56.23 |
-21.88% |
|
3-08-08 |
$100.32 |
||
10-23-08 |
$71.33 |
-28.90% |
|
9-06-11 |
$185.85 |
||
5-15-12 |
$149.63 |
-19.50% |
More From ETFguide.com
