“Gold is under irreversible upward pressure” said Nick Barisheff, CEO and president of the Bullion Management Group, during his early January, 2011 speech to the Empire Club in Montreal, Canada. This sentiment echoes many gold bugs who believe gold is the ultimate investment during all conditions and economic climates. These brash statements throw up red flags for sophisticated investors who understand that when bullish fever hits an extreme, in anything, it’s a sure signal that the top is near, if not already in place. The gold bulls cite trends such as central bank buying, the decline of the US Dollar, outsourcing, inflation, the aging population and even fringe theories like Peak Oil as the primary reasons for their beliefs. While there is some truth to these tenets, obviously trends don’t last forever and if they do, their effects on various commodities can vary greatly depending on the full macro economic picture.
While the gold bullish hype has hit feverish levels, is it smart to make a long term investment in the yellow metal? Let’s take a closer look at the facts. Gold returned an impressive 29.52% return in 2010. However, when you compare these returns with a basket of the 14 other commodities, it pales in comparison. Gold came in 8th in the 2010 performance rank of the basket. Palladium and silver led the top performers with 96.6% and 83.21% returns respectively. While natural gas carried the losers torch with a dismal loss of 21.28% for the year. In other words, while gold gained in 2010, it was far from the best choice for your investment dollar.
Technically, a clear triple top has appeared on the daily gold chart. This means that price has failed to break the $1431/oz resistance level after 3 attempts over the last several months. In addition, price has just broken the 50 day Simple Moving Average on the downside. Both of these factors paint a clear picture to most market technicians that the top is in place and the trend has shifted downward. The next major level of technical support rests on the 200 day Simple Moving Average at $1275/oz.
While no one knows the future, the facts and current price action point toward the top being in or very close for gold. The volatility and uncertainty in the yellow metal will continue to make it interesting for short term trades.
For investors, you don’t need to be engaged in direct commodities trading to take advantage of the swings in the price of gold. Recently, ETFs such as the SPDR Gold Shares (GLD) have become a popular investment choice for active traders and individual investors as it seeks to replicate the performance of gold bullion. This is a great way for active traders and equity traders to get involved in gold’s price action.
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