May 2012 – Is Gold Still Worth It?
All markets have their strong periods and their weak ones. Gold is no different. Right now the market is taking a breather and is reacting to stimuli more aggresively than it would be during times of strength and strong trending. In some ways it becomes a viscious cycle. The up and down swings results in volatility that shakes out anxious investors and potentially driving price down and further weakening it.
For example, gold has being reacting to Federal Reserve meetings in which a directives regarding Quantitive Easing have been issued in a manner similar to other markets. Price is bouyed with the thought that easy money is on the way and reacts glumly when it is not.
Also important has been the slowing Chinese economy. Since China has become the engine of global growth, its slowdown has hurt all of the commodities and metals in general, because slowdowns mean less demand. Not only is China the world’s biggest gold producer, it’s also the world’s biggest gold buyer.
A trend is in motion until it’s over. This powerful yet simple phrase reminds us to stay invested until the move is over. Gold surged over 150% between the 2008 low to its record high of near $1900 September 2011 without so much as putting a foot wrong off the trend line along the way.
Diagram below in fact shows how gold has been posting strong support at $1600 ever since the peak.
The decline from this peak has so far been less than 20% and does not yet indicate a turn around in the long term trend motion. Yes, price is down and price is weak but the bullish fundamentals have not disappeared.
Tensions in the Eurozone are resurfacing with a new President inaugurated in France and an anti-austerity new government in Greece. Central banks after having been net sellers of gold bullion for years, have now crossed back into being net buyers as they grow weary of the Fed’s monetary actions and build their gold reserves.
The gold market is still alive and would-be investors should consider this price as a long-term entry-point.
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