By Sara Nunnally, Editor, Smart Investing Daily, taipanpublishinggroup.com
A couple of weeks ago, I gave you some key support points for the price of gold. I said that we’d see some pretty big swings between the $1,350 and $1,400 level. Indeed, gold prices have seesawed drastically.
I also said that if the price of gold fell below $1,350 that the next major support point would be at $1,250.
Of course, we’ll see some minor support here and there, like $1,330 on the chart above. That’s where gold futures bottomed out in November 2010.
Will the price of gold fall all the way to $1,250?
The honest answer is I don’t know. Here’s what’s happening now, though. January futures are set to expire on Thursday this week. At the same time, the value of the U.S. dollar has climbed. The U.S. dollar index jumped on Friday, and the euro fell against the dollar.
Those two things may have put a lot of downward pressure on the price of gold, forcing it through its previous support point.
Additionally, with the stock market continuing to rally in January, the price correction we called across the board for commodities still continues. Institutional investors took gains and are now looking to riskier assets.
That said, the appetite for gold may now be moving overseas, and that could increase demand, particularly as gold looks “cheap” compared to the end of 2011.
Interest in gold ETFs is picking up in places like China and India; some predict a boost of 40% in investment this year.
Kitco.com says gold could find support between $1,325 and $1,275, which means we could have some more downside, despite the long-term bullish outlook for gold demand.
I agree with this position, particularly if we get some good economic news this week. We’ve got American Express (AXP:NYSE) and McDonald’s (MCD:NYSE) reporting today, housing data and the State of the Union address tomorrow, FOMC decision on interest rates on Wednesday, Microsoft (MSFT:NASDAQ) earnings on Thursday, and the GDP report on Friday.
A big week to say the least.
Gold started edging higher in Asian trading late Sunday, most likely due to the steep drop in prices since the beginning of the year.
In fact, the SPDR Gold Shares ETF (GLD:NYSE) increased its holdings by 1.6%, its first rise in two weeks.
Gold mining companies will appreciate this news as the downward pressure in gold prices has also negatively affected their share prices. Take a look at Goldcorp (GG:NYSE), one of my favorite gold mining companies because of low production costs and timely acquisitions.
(Investing doesn’t have to be complicated. Sign up for Smart Investing Daily and let me and my fellow editor Jared Levy simplify the stock market for you with our easy-to-understand investment articles.)
It appears that the downward pressure has even forced GG out of its yearlong uptrend. GG could fall as far as $36 a share, and possibly as low as $34, should weakness in gold prices continue past this week.
At that point, though, I would consider both gold and GG oversold.
Money has been flowing out of GG like rats off a burning ship. The last time money flow was this low was back in February 2010… and GG rallied from $33.22 to $46.22 by mid-May.
At the same time, though, gold prices climbed from around $1,070 to nearly $1,250.
I don’t think we’ll see another 25% jump in gold prices over the next five months, but I expect weakness to end soon, and traditional first-quarter demand to help boost prices higher.
We’re going to keep an eye on both gold and GG this week, and I’ll come back to both of these charts in Thursday’s Smart Investing Daily article.
*Editor’s Note: In Saturday’s Smart Investing Daily weekly review, I noted that iPath Dow Jones UBS Grains ETN (JJG:NYSE) and the PowerShares DB Agriculture ETF (DBA:NYSE), the two agricultural funds we’ve been discussing, appeared to be moving higher, and that I was going to enter them both into our model portfolio to follow using today’s opening prices. Those are $54.99 and $33.62 respectively.
If you missed my interview with Marc Pearlman on Your Money Matters Radio show you can listen to it right here. In it, I discuss my new book, Barbarians of Wealth and how you can protect yourself against today’s greedy, self-serving barbarians in Washington and on Wall Street.
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About the Author
Sara is Co-Editor of Smart Investing Daily. As Senior Research Director and global correspondent, Sara Nunnally’s diverse resume includes studies in art history, computer science and financial research. She has appeared on news media such as Forbes on Fox, Fox News Live, and CNBC’s Squawk Box, as well as numerous radio shows around the country.
As Senior Research Director, global correspondent and co-editor of Smart Investing Daily, Sara has traveled all over the world in search of the best investment opportunities to recommend to her readers, be they in developed economies like France and Italy, in emerging markets like the Czech Republic and Poland, or in frontier terrain like Vietnam and Morocco. Her unique “holistic” approach of boots-on-the-ground research has given her an edge in today’s financial marketplace as she searches for the next investment opportunities in hot sectors like alternative energy, currency markets and commodities.
