In our last market analysis, we noted that gold continued to struggle.
After bottoming at around $1170-$1180 in June, the metal rallied to retest resistance levels of $1350 in late October. Since this peak, gold has slid back to the low-mid $1200 range on a variety of factors, the most notable being jobs and Fed monetary policy.
One report from the week before Thanksgiving confirms that traders were the most bearish since just before June’s bottom.
Just in the last week, the yellow metal dipped to as low as $1213 per ounce on a stronger-than-expected jobs report.
At the time this was written on Monday, gold has slightly recovered to the $1230-$1240 range, which is more than $100 off the resistance levels seen in late October, and nearly $700 off its all-time high set two years ago.
The Impact of Strong Jobs Numbers
Since Fed chairman Ben Bernanke first announced the possibility of tapering the stimulus program some months ago, there’s been no shortage of speculation on when this might occur.
Many believed tapering would begin sometime in September, but much to our surprise, the Fed decided to maintain the current level of bond purchases at $85 billion per month.
Bernanke and other Fed officials have stated several times that stimulus (QE) tapering will not occur until they believe job creation is strong and steady enough to do so.
The latest ADP jobs report shows non-farm payrolls grew by 203,000 in November, dropping the U.S. unemployment rate to 7% — the lowest level since 2008.
These stronger jobs numbers are leading many investors to consider the real possibility of Fed tapering in early 2014.
Bears vs. Bulls: Market Observations for 2014 and Beyond
Like we’ve often said, opinions on the future direction for gold vary as far and wide as the Grand Canyon. While that may be hard to conceptualize, there’s no doubt the debate is intense.
Gold bears — most notably Goldman Sachs — maintain that gold is a “slam dunk” sell. In forecasts, they anticipate another 15% drop in 2014, citing an improving economy in the U.S. “…spurred by an acceleration in private consumption and business investment.”
Ole Hansen of Saxo Bank in Copenhagen says that “…taper talk and a friendly risk environment have provided better investment opportunities elsewhere.”
But long-term gold bulls — the camp to which we belong — paint a different picture.
Although 2013 has been a brutal year for our favorite metal investment option, it has seen gains year-over-year since 2000. In the first 12 years of the 21st century, gold has impressed even the most bearish investors, rallying from a low $275 per ounce in 2001 to nearly $2000 in 2011.
One bad year is a natural thing. In fact, gold’s 12-consecutive-year-gains are unheard of. A correction, even upwards of 50%, is not out of the question.
In our last market update, we discussed one analysis from Jordan Roy-Byrne of Resource Investor, who explained that precious metals could plunge to new lows and form a final major bottom.
In a more recent column, Roy-Byrne explains that $1087 would mark a 50% retracement of the entire bull market from 2001 to the peak in 2011. A trend line chart for 2001 to present shows other nominal lows, and indicates that gold would find solid support in the $1100 area.
One sign that a bottom has been reached would be an exceptionally strong performance the following day, which would indicate bullish momentum, according to senior analyst David Smith of The Morgan Report.
Smith explains in an interview that, since gold’s 12-year run was slow and steady and not vertical, the bull-market trend still “…has a lot of power, and it might be years before it ends.”
Are gold’s best days in the rearview mirror? Or are we close to a new bottom and subsequent rally?
Is this a good investment opportunity for physical gold bullion?
Leave us a comment below, or find us on Facebook or Twitter.
