After a correction in December brought the price of gold down 20 percent, the first week of trading in the New Year firmly established a floor above $1,600 as gold investing literally popped.
Posted by Adam King on January 09, 2012
Gold Investing Has Golden Week
January 9, 2012 – After a correction in December brought the price of gold down 20 percent, the first week of trading in the New Year firmly established a floor above $1,600 as gold investing literally popped. Intraday trading sessions saw rises of $40 in twenty minutes as investors sought to take advantage of the low price of gold. Remember that after the correction in September, central banks swooped in and bought gold at highs not seen since the end of Bretton Woods in 1971.
For all intents and purposes, we can declare the correction over, though final confirmation won’t come until next week or the gold price closes for the week above the resistance in the 200 day moving average at $1,627 an ounce. If gold closes above that crucially cited level of resistance for the week, it will be set for full on bull market and much higher prices in the weeks to come.
The support under the current spot price, however, appears to be solid at this point. $1,600 is not necessarily vital technically and is partially a psychologically important support level. Market fundamentals have always dictated we are in a long-term bull market, but the signs emerging now that we have come through the correction are very encouraging for investing in gold in the New Year. Concerns of further moves downward or possible corrections to levels as low as $1,200 now appear unlikely and improbable at best. This is a good sign for those who have been waiting for the right moment to buy.
In hindsight, the technical reasons for the correction make perfect sense and should restore confidence in anyone who had heard from the erroneous analysts that gold had entered a bear market. The bankruptcy of MF Global immediately forced the liquidation of commodities futures contracts. The timing is right for those contracts to be expiring right around when the correction began. We saw similar action in 2008 after the bankruptcy of Lehman Brothers when gold actually dropped to $681 an ounce in the month following the giant’s collapse.
Clearly, gold has been worth a lot more than $681 an ounce in the months and years following the collapse of Lehman Brothers. And those investors who took advantage of the forced liquidation to pick up as much gold as possible have realized a gain of 138 percent today. The climate for investing in gold is the same now and we will see similar gains in the future for gold bought now.
Stewart Lawson
Senior Staff Writer – Certified Gold Exchange
Categories:
US Gold Market
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