Over the past six months gold has been struggling to maintain price levels expected from market players. Therefore, most investors are wondering if it has finally reached the end of its 12-year bull run.
The yellow metal’s price seem not likely to drop immediately, in the course of a week or even a month. Prices could still move sideways for some time. Hence, investors see an opportunity in the lowering cost.
In times of uncertainty, it is very important to have a diversified portfolio.
Back in September 2011, gold moved around $1900 per ounce. Since then, it mostly ranged between $1550 and $1750 per ounce. Charts signed a so called death cross on February 20. That happens when falling 50-day moving average crosses declining 200-day average. This is an important technical signal that the price could drop sharply.
Yet, according to well known investment expert from DundeeWealth Economics, things is not what they seem. His detailed and often accurate predictions of gold price trends suggest that the death cross is not a reliable bear market indicator. Since the 2001, the beginning of the current bull market, there have been six death crosses. Therefore, it is likely that the upbeat cycle will continue. Though, gold is in a correction phase right now.
There are a number of positive and negative factors for gold in 2013. Higher price support factors include the central bank buying and continuing debt crisis. On a historical comparison, gold is not expensive. Therefore it should benefit since global imbalances will devaluate the dollar.
On the negative side, the general trends towards deflation may prevail. Investors shift from gold to equities and rising real interest rates on the back of a quantitative easing ending.
Most latest gold price forecasts predict gold to average $1665 per ounce in 2013. Earlier forecast saw gold at around $1768 per ounce and higher. The 2014 average prediction expects gold to trade at around $1720 per ounce.
Fundamentals still remain in place to support a continued bull run. Yet, so far this year gold registers poor return of -5,7%. At the same time, the Dow Jones index sits at +10,5%.
The market is oversold and should witness some short covering in the near future. This is one of the supportive factors. The recent minor yellow metal recovery gained some ground from earlier decline. The brief positive momentum was caused by firm Asian demand and central bank buying. Also, the fragility of the global economic recovery is still a major issue.
In general, investors should be cautious when Goldman Sachs and other major investment banks and money managers are giving panic signals.
Three weeks ago, Goldman Sachs report cut its gold price forecast for 2013 to $1600 from previously $1810 per ounce. The investment bank said improved economic growth prospects pushed US rates. That coincided with strong gold selling.
It is difficult to predict gold’s long term direction, but there would be no reason for a sustained gold price increase if real interest rates pick up.
In 2012, the U.S. Federal Reserve continued with its quantitative easing programme. Also, there had been an agreement on Europe’s debt-shaken countries. In respect gold prices fell due to these developments. Another negative factor for gold was the fact that inflation showed no sign of picking up. In 2013, the yellow metal was driven down by essential selling of ETFs.
In general, the global central bank gold buying rose in 2012. Yet, it is still relatively weak in terms of the total size of the market.
