Gold Roller Coaster Likely to Go Up

Situations with the US dollar show that it is bearish in the medium turn, which means that gold will be bullish since gold rises as the dollar falls. This means that now is a good time to buy gold coins and invest while prices are low before they go back up again.

By Przemyslaw Radomski
Mar 16, 2012 2:30 pm

The roller coaster metaphor I used two weeks ago after the $90 flash crash in the price of gold seems appropriate this week as well. It must be tough out there for precious metals investors.

Wednesday gold futures tumbled again. April-delivery gold fell $51.30, or 3%, to settle at $1,642.90 an ounce, the lowest gold settlement price in more than eight weeks.

The dollar strengthened, and traders reacted to the Federal Reserve’s rate decision and policy statement in the previous session, which buried any hopes for now of more monetary easing in the short term. Investors have been hoping that the Fed would take action again to spur the economy.

The last round of quantitative easing, known as QE2, weakened the US dollar and sent gold prices sharply higher. After the market closed Tuesday, the Fed's upbeat comments about the US labor market dimmed hopes of further stimulus.

Also Tuesday afternoon, JPMorgan (JPM) announced it had passed the government’s stress testing and was declaring a dividend as well as paying back a big chunk of government loans. Most of the largest US banks passed their annual stress test, underscoring the recovery of the US financial sector. The US Dollar Index traded higher Wednesday, hitting a fresh seven-week high, also bearish for the precious metals markets. Year to date, gold is still up 5%.

A day before the flash crash, my firm sent out a Market Alert to subscribers to stay out of the speculative long-term positions, saving them from the gut-wrenching drop. And when we sent out another Market Alert with a buy signal on March 6, it was with a caveat – to be prepared emotionally for the scenario in which metals move temporarily lower for a few days and then form a bottom. We believe the price action of the past few days could be that the final bottom, for this decline has already been reached or is very, very close to it.

Gold's sharp move lower will most likely spark demand from emerging markets such as India and China as buyers will come in lured by lower prices.

Interestingly, platinum outperformed gold and maintained a premium over gold for the first time since September, reverting back to the “norm” where historically (for the past 20 years) platinum trades higher than gold. Happily, I had previously suggested you switch part of your holdings from gold to platinum.

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