Dark days for the yellow metal now but there may be three things that could bring back a golden age.
As the golden days of summer begin in the Northern Hemisphere, gold itself is facing a dark and cold market.
Since Federal Reserve Chairman Ben Bernake’s press conference Wednesday, bullion has punctured below the $1,300 per ounce mark, falling to levels last seen in early September 2010. Bernanke had suggested that the Fed would indeed begin tapering its $85 billion per month bond buying program (“QE2”). Traders now anticipate fewer dollars in the money supply next year than previously thought. As gold is often seen as an inflation hedge, its price went down with lower expected future inflation.
It’s down now, but is gold out for the count?
Not necessarily, says Patricia Edwards, Principal and Chief Investment Officer at Trutina Financial. According to Edwards, there are three factors that could move gold higher. First is an increase in inflation, the very thing the market is believed to be discounting at the moment.
Edwards also believes that a positive turn in emerging markets could pull gold up along with it. Increased consumer demand –physical gold, such as in the form of jewelry – in emerging markets can support gold prices. “A lot of the buying comes out of China and India,” says Edwards. “In fact, [there was] 27% demand growth out of India and you’re seeing 20% of demand growth out of China last year. That has to continue only if their markets are getting better”.
And, Edwards says another banking crisis can cause a flight to safety in the form of gold. The most vulnerable areas where Edwards sees dark clouds brewing for banking are China and Europe.
On the technicals, CNBC contributor Abigail Doolittle, Technical Strategist for The Seaport Group, says the charts are pointing to a messy and volatile period ahead for the yellow metal. Doolittle foresees gold trading in a wide range, between $1,300 and $1,600 over the next six months. “Gold’s chart is pretty ugly at this point,” says Doolittle.
However, its current levels would be a clear signal that it has bottomed especially if it breaks above $1,337 per ounce. Doolittle currently has a buy rating on Gold with a $1,488 price target. She also has a buy rating on the SPDR Gold Shares ETF (GLD) at $143 and the Market Vectors Gold Miners ETF (GDX) at $36 per share.
Watch the video above to hear Edwards and Doolittle discuss the future of gold.