Gold: Year End Rally In Store?

| November 11, 2013 | 0 Comments

goldIt isn’t easy being a gold investor these days…

Lingering uncertainties surrounding the onset of Fed Chairman Ben Bernanke’s tapering program have investors unwilling to commit to the market.  As a result, the metal is stuck in choppy and relatively boring trading pattern.

Take a look…


As you can see, it’s been nothing but directionless trading for gold since mid-August.

Now that’s not to say there hasn’t been a few promising moments…

At times it looked as though bulls were ready to take gold dramatically higher. 

For example, in late October the yellow metal ran to multi-week highs near $1,350 an ounce.

But like so many times in 2013, a bearish fundamental data point popped up to kill bullish momentum.  Thanks to this phenomenon, performance has been downright boring over the past few months- gold is down nearly 4% since mid-August.

Is there anything to look forward to in this market as we approach 2014?

Unfortunately, the most recent US jobs number effectively squashed any remaining bit of short-term bullish momentum. 

In case you’re unaware, the October US Nonfarm report number came in surprisingly strong at 204,000 this past Friday.  That’s much better than the consensus estimate of 120,000 going into the release.

Thanks to the robust number, it’s looking more likely that Ben Bernanke initiates the tapering of Federal Reserve bond purchases sooner rather than later. 

In fact, some economists are pointing to December for the start of the much-anticipated pullback in US economic stimulus.

Until this tapering uncertainty is finally put to bed, you can expect more indecisive short-term trading from gold.

But that doesn’t mean long-term investors should give up hope…

You see, there’s still an enormous pink elephant in the room regarding the price of gold.  To put it simply, the metal is currently priced too cheap relative to production costs. 

As a matter of fact, most mid- and large-cap gold miners report all-in costs at around $1,300 an ounce.

What’s that mean?

It’s a complex issue.  But in a nutshell, the longer gold stays below $1,300, the more mining companies that will eventually have to close up shop.  And once that happens, supplies of the metal will undoubtedly decrease, creating a supply shortage.

At that point, investors will have no choice but to carry the yellow metal higher.

But as for the near future, it looks as though gold bulls will likely stay out to pasture.   There’s simply too much uncertainty surrounding the onset of Ben Bernanke’s bond purchase tapering program for investors to get excited about owning the metal.

Now, that’s not to say gold is untradeable.  You just have to be much pickier with your entry points, and be quick to take profits!

Until Next Time,

Justin Bennett

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Category: Gold

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.