Going for the Gold
Fundamentals
It is not just the motto for aspiring Olympic athletes, but apparently jittery investors and traders as well, as the yellow metal has soared to highs not seen since July. Gold is benefiting from investors' lack of confidence in the leaders of the major world economic powers having a solid grip on how to end the economic malaise we now face. This flight into Gold became more apparent after U.S. Treasury Secretary Timothy Geithner failed to provide specific details on the U.S. Government's plan to deal with the economic crisis. In addition to being a store of safety during turbulent economic times, Gold is also used as an inflation hedge. Though it may seem strange for traders to buy Gold in a deflationary environment, we must think of what may happen once all this liquidity being pumped in from major world central banks finally works its way through the world economy. In addition to the psychological reasons for owning gold, there are actually some bullish fundamentals as well. Gold supplies out of South Africa fell once again, with output down by almost 18% in December. Also supportive was the growing interest in Gold ETF's, with the largest of these funds, the SPDR Gold Trust (GLD), increasing their holdings to a record 935.09 metric tons. So until traders and investors start to feel confident that the worst of the economic turmoil is behind us, the lure of Gold will continue to be a beacon for those looking for a safe haven in this stormy investment climate.
Technicals
Turning to the daily chart for the lead month April Gold contract, we notice that since forging a near-term low of $803.60 back on January 15th, Gold has rallied nearly $150 per ounce, which happens to coincide with an intermediary high in Treasury Bond futures. It appears that traders flocked back into Gold as fears of the massive size of U.S. Government borrowing sparked concerns of a longer-term inflation uptick. Prices remain well above the 20-day moving average, and momentum looks strong. However, there may be a bit of a bearish divergence forming in the 14-day RSI, which could be signaling prices have run-up too far too fast and a pull-back might be forthcoming. The next resistance point for April Gold is seen at the milestone $1000 level, with support found at the 20-day moving average currently at $895.00.
Mike Zarembski, Senior Commodity Analyst
