A Nine Month Forecast For Gold

With what I can only describe as a ninja-like March storm, 4-6 inches of the heavy white stuff blanketed your editor’s compound just north of Baltimore.

Surprisingly, the weather forecast that I happened upon Sunday night was correct – accuracy, finally!

On the plus side, the internet remained strong and your DRH continues as usual. Yesterday we covered an outlook for the price of oil, today we’ll switch gears and look to our favorite precious metal, gold.

That said, today I can promise you two things: 1) a picture of my dog in the snow and 2) a nine month forecast for the price of gold. Heh, I’ll concentrate most of my effort on the latter. Let’s have at it…

For the first three months of the year the price of gold took a modest beating – after reaching a high near $1,700 in January, prices took a dive the following month to $1,565. Here at the end of March prices have stabilized around $1,600.

But you have to remember that holding or buying gold is much more than just price action…

As citizens and account holders in Cyprus are quickly learning, the monetary world that we’re used to can change on a dime. Where once you could easily visit the local ATM and go buy groceries, today you can’t. In fact, banks have been closed for the past 12 days!

The verdict is still out as to what’s going to happen when they do open. Like we said last week central bankers tend to over estimate their grasp on a situation and highly under estimate the power of ripple effects in free-markets.

When the decision was made to make a daylight heist of personal bank accounts to the tune of 10% I doubt the powers that be thought about a run on grocery stores. But if you look at the daily news coming from the small island nation, people are truly worried and taking any precautions necessary – like stocking up on groceries.

I mean really – even with the recent change of heart to “save” accounts under $100,000 – who knows what will happen when the banks open. We’ll have to wait and see.

In the meantime you and I can both agree that the monetary plague doesn’t stop at Cyprus. Instead, as we pull the curtain back we’ll see there are more problems to come for 2013.

Europe is in real trouble. Their currency is slowly burning and much of the European Union is facing similar trouble to that of Cyprus. Out of control spending, reckless monetary policy, a faltering economy and high energy prices won’t end well for Europe. That said, there are a lot more fireworks to come.

Up until now though, the trend has led to an overvalued U.S. dollar. With nowhere left to turn many global investors parked their funds in the safety and security of the greenback. That’s why the dollar index is at a 6-month high and only a stone’s throw from a multi-year high.

But don’t expect this uptrend to continue for the rest of the year.

This gets us back to our discussion on gold. In the short-term gold may face a little pushback from a strong U.S. dollar. But I’m willing to go on record and say that gold’s recent popularity and global appeal is about to spark a lot more demand from those with exposure to Europe.

As the euro burns and more national banking systems head down the same road as Cyprus, European investors will want more than the U.S. dollar can offer. Sure some will turn to U.S. equities, buy many will turn to commodities, gold in particular.

Again, imagine living in an economy that teeters on nations like Cyprus, Greece, Spain and other economic time bombs. It’s only a matter of time before the latent demand for hard assets bubbles to the top – something that I expect to see as soon as Cypriot banks open back up!

Indeed, over the next three months and into the summer we’ll see a lot more demand for gold.

From a trading perspective we’re at an important juncture. One of the key indicators that traders use to judge a change in the short-term trend is the 20-day moving average. In fact, the last two times gold dropped below $1,600 it subsequently crossed over its 20-day moving average and made a quick (three month) rally towards $1,800.

That’s where I see our next price target. With recent bottoming action in the price per ounce, gold is poised for a three-month run at the all-important $1,800 level.

Earlier this month gold crossed over its 20-day moving average in a strong move that could signal an early stage gold run.

But unlike the past two failed attempts to sustain a rally above the $1,800 mark, this year we could see the right confluence of events – not the least of which we’re seeing unfold before our eyes in Europe.

The fundamentals and the charts are lining up for gold’s next run to $1,800. Keep an eye on a sharp move to $1,650 to get this next rally started. By the time everything is said and done for 2013 we could see gold knocking at the door of $2,000.

Would you be surprised? I wouldn’t. (Neither would my dog, see below!)

Keep your boots muddy,

Matt Insley

P.S. All of this euro/Cyprus talk almost made me forget about yesterday’s snowstorm. Here’s a look at what old man winter brought us on a crisp March day:


…Close your eyes and imagine warmer weather and higher gold!

Original article posted on Daily Resource Hunter