In my opinion, this is the best opportunity to buy gold in several years.
One, it’s all about the fundamentals. With interest rates low and heading lower (10-year Treasury is under 2%), this is gold positive. (See this article from December, 2011.) Furthermore, with the global economy in recession, interest rates will likely continue lower as central banks come up with new ways to keep the cost of capital cheap and to keep the “balls in the air”. Until proven otherwise, central banks will respond to crisis with money printing.
Two, over the past 10 years the best time to buy gold was when there was dollar strength. But even then and over the past 40 years, the relationship between the Dollar Index and gold hasn’t always been inversely correlated. Let others think that a higher dollar is bad for gold prices. That is the prevailing dogma, and like most market dogma, it is wrong. To me, the dollar is a non-factor in the gold equation.
Three, the technicals have turned positive. Three days ago, I am writing about the divergence of price from the fundamental picture, but over the past two days, it appears that gold is putting in a double bottom. See figure 1 a weekly chart of the SPDR Gold Trust (symbol: GLD). Price is currently testing the 153.12 key pivot point. This is support and the dip below this level likely cleared out the weak hands.
Figure 1. GLD/ weekly
Four, this is a low risk set up that is well defined. With support at 153.12, the play is rather simple. A weekly close below the 153.12 level would be reason enough to move to the sidelines.
Guy M. Lerner, MD, has been writing about the markets for over eight years. He is the proprietor of the TheTechnicalTake, a free blog dedicated to independent and original market analysis. He also provides a Premium Content newsletter that focuses on investor sentiment in the equity markets. Lerner is the principal partner in ARL Advisers, LLC, a registered investment advisory in Louisville, Ky.