These Two Words Could Send Gold Soaring: Fiscal Cliff
Since Obama entered office 2008, gold has been on an unbelievable tear. But will the momentum continue during the president’s second term?
Let’s zoom out and see:
Over the last five years, gold’s spot price has only two spots where it lost significant momentum. Once was during the 2008 financial crisis (where the term “sell everything” took on a whole new meaning) and once again earlier this year.
Still, I wouldn’t put gold’s 2012 action in the same category as 2008. It’s sideways movement—nothing more. Also, I wouldn’t put too much stock into the presidential elections and the price of gold—other than the fact that we now know that there will more than likely be no changes to monetary policy anytime soon. Of course, that bodes well for gold bulls.
Gold’s Next Spike Could be Right Around the Corner
Gold has outperformed the S&P 500 over the past three-plus years. But gold and stocks have essentially traded in the same direction over this same timeframe, with the exception of the late 2011 correction:
The arrows on the left side of the chart mark where stocks and gold diverged. You probably remember this gold rally coincided with a nasty drop in stocks fueled by the eurozone crisis and the U.S. Congress’ ill-advised debt ceiling bluff. Both these events spooked investors enough to shoot gold to new highs.
As the crisis became old news, the relationship between gold and stocks returned to “normal” for the time being. My original thinking was that if gold and stocks’ relationship remains intact, the yellow metal could correct with the stock market. But as the calendar flipped to November, you can see the S&P and gold beginning to diverge once again—a potentially ominous sign for stocks, an a catalyst that could set up a gold rush like we saw in 2011.
Two words could help send gold significantly higher: fiscal cliff.
If investors continue to fret about the looming fiscal cliff and all of the surrounding media attention, it’s entirely possible for gold to put in a repeat performance similar to its 2011 spike.
When to Buy Gold—and What to Expect
If you’re a holder of physical gold, you probably aren’t interested in stop-losses—or any talk about selling your holdings, for that matter. That’s fine. Instead, I want to reveal a gold roadmap that will show you what you can expect from the yellow metal over the long-haul:
The two blue lines tell the story here. Gold is trading in a range between $1,550 and $1,800. These levels are both important psychological price points. Here’s how you can plan your purchases:
First if gold drops below $1,550, hold off on buying for several weeks and/or months. A break of $1,550 signals that lower prices are in gold’s future. If you’re able to wait, you could easily get a better deal—perhaps prices between $1,300-$1,400.
On the flip side, a breakout about $1,800 would signal that higher prices are in store in the near future—possibly even another attempt at $2,000.
With congressional fireworks set for the halls of the capitol in the next few weeks – and more talk of the looming fiscal cliff – I’d err on the upside of the estimates above.
Greg Guenthner, CMT
Original article posted on Daily Resource Hunter