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Why this may be the time to buy gold

Lawrence Lewitinn
Lawrence Lewitinn
Talking Numbers

Gold is trying to claw out of its most recent hole.

Though still up 5 percent on the year, the yellow metal got slammed Friday, tumbling more than $30 to a three-week low after strong U.S. jobs data came out. That was gold’s biggest drop in over a year but with worries over Greece and the European Union increasing, bullion eked out a modest half-percent bounce Monday.

One portfolio manager says that while gold might get a short-term pop on Greece’s political instability, he recommends that longer-term investors avoid the metal.

“We are bullish on the U.S. dollar, so we believe that will put pressure on gold prices,” said Chad Morganlander, portfolio manager at Washington Crossing Advisors. “If you have a longer-term view on gold – 24 to 36 months – we believe you are going to see lower lows.”

“It doesn’t mean it’s not a good investment for allocating and rounding off your portfolio,” he added. “But nonetheless, at this point stay underweight.”

The technicals are positive on bullion in the near term, according to the chart work of Mark Newton, chief technical analyst at Greywolf Execution Partners

“I like gold. I’m bullish,’ he said. “I think we can start to move higher from here.”

Newton’s short-term gold chart shows prices breaking above the neckline of a bullish “reverse head and shoulders” pattern last month. After rallying above $1,300, the price is now retesting the neckline as support.

“It provides a good risk/reward opportunity for investors to take a look at now,” he said.

On a five-year chart of gold, Newtown also sees prices as having formed a bottom over the last couple of years and recently having a key break above a downtrend at $1,270 per troy ounce.

“It’s good to get in now,” he recommends. “Gold has been rallying in other currencies for the last couple of months. It’s just starting to move in U.S. dollar terms, but I think it should continue.”

Yet, like Morganlander, Newton sees the greenback as a headwind for gold.

“If anybody has a longer-term bullish forecast on the U.S. dollar, it might make it tough for gold to rally on an intermediate-term basis,” he said. “It’s really just more of a short-term rally up to $1,340 and then $1,433, which matches the highs we saw back in December 2013.”

“For now, it looks like a decent opportunity to take a look at buying,” Newton added.