Gold Fundamental Analysis (2011/02/16) A Case for Gold
2/16/2011 Gold Fundamental Analysis (FXpath.com) - Whether you ask a technical trader or market analyst over the past few years, chances are that they were bullish gold. Chartists could not deny the strong upward trend and analysts could not resist the safe haven trade as the financial crisis and debt problems hit the world.The yellow metal has managed to appreciate over 200% since the fourth quarter of 2008. Despite this impressive rally, other metals have managed to yield higher returns. Silver has rallied 365% since October 28th, 2008 and other metals including platinum, palladium, and copper have outperformed gold. Potential upside for gold still exists. Since making a new record high last December at 1,430.9, a significant pullback saw weakness towards 1,308. The recent retracement could have been spurred by improvements in the U.S., China, and German economies over the past quarter.
While gold could eventually burst, the fundamental factors are still supporting a drive higher. Inflation will continue to be a strain on the worldwide economy as food and fuel prices continue to rise. Also, tensions in the Middle East region could bring a wave of panic to the markets. Just this morning, gold spiked higher after news of two Iranian warships were on target to pass the Suez Canal. A third catalyst could be the U.S. housing markets. Job growth is not happening fast enough and families will not be in a position to take on a mortgage or maintain their payments. If defaults increase and house prices drop, the markets could fall under tremendous pressure.
Every quarter hedge funds that manage more than $100 million have to disclose their holdings. Both George Soros and John Paulson respectively increased and maintained gold positions in their funds. Both are legends in the world of trading. George Soros is famous for shorting the sterling and breaking the BoE while making an unconfirmed $1billion. John Paulson is known for his bet against subprime mortgages in 2007. While the combined gold positions last quarter have increased 0.5%, Mr. Soros early last year said that “gold is the ultimate bubble”.
Gold has been trading between 1,300 and 1,430 over the past 5 months and eventually this consolidation will end. If correlations in the risk on/risk off trade remain the same, more catalysts currently exist for the flight to safety than not.
Edward J. Moya
Market Strategist, FX Solutions
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The Yellow metal has always been a solid investment.It is customary for us to give Gold to our siblings or close relatives when they get married. If it goes any higher, the tradition of giving Gold as a gift will be within our reach.