Gold: New Lows Ahead?
The past few weeks have been a bit dicey in the gold market. The yellow metal has been stuck in a volatile short-term downtrend ever since hitting $1,425 an ounce on August 28th.
Let me show you what I mean…
As you can see, gold’s day-to-day trading has been quite indecisive in recent weeks. It’s what I like to call a “one step forward, two steps back” kind of market.
But yesterday, gold took a giant leap to the downside…
The yellow metal plummeted just over $40 an ounce when the US Department of Labor announced the number of people filing for unemployment benefits last week dropped to 292,000.
That’s down considerably from the 323,000 reported the previous week, and puts jobless claims at a 7½ year low. That’s not the news you want to hear if you’re a gold bull.
However, there may be a bit of funny business going on with the Department of Labor’s report…
According to various sources, the government agency recently upgraded computer systems in two states. That may have led to an undercount of people filing for jobless claims.
Regardless of what caused the big drop in claims, bears are now roaring that gold’s summer rally is over. They now predict gold will retest the late June lows before dropping to $1000 an ounce by the end of the year.
Is that really a possibility?
Let’s look at another chart for answers…
As you can see, gold broke solidly above the 50-day moving average in early August (red circle). But in recent weeks, the metal has reversed lower to test this important technical support line at $1,332 an ounce.
While this pullback may be concerning for some, I view this as normal trading activity…
It’s not uncommon for assets to break higher through important technical levels and then revisit them weeks later.
Now remember, next Wednesday’s FOMC meeting will go a long ways towards deciding gold’s ultimate fate. As you may know, that’s when Ben Bernanke is expected to announce the start of tapering operations at the Federal Reserve.
Without question…
Next week is extremely important for the price of gold. Price projections for the yellow metal are all over the map. Some see it heading to new lows, while others see it jumping to $1,500 an ounce by year-end.
Which side of the fence are you on?
If you believe gold is ready to explode higher, you might capitalize by buying the iShares Gold Trust (IAU). On the other hand, if you’re convinced gold is going to sink, you could profit from buying the DB Gold Short ETN (DGZ).
No matter which side of the fence you’re on, expect one heck of a wild ride for gold next week!
Until Next Time,
Justin Bennett
Category: Gold
