By John Reizner |
The gold price has recently broken out of a flag formation on the upside on the weekly gold chart in a price move from $900 and trading as high as $1007.70 on February 20, 2009. The gold market is now pulling back down sharply to as low as $905.70 intraday on March 3, 2009. This pullback to the breakout point appears to be normal, and the gold market could resume its powerful uptrend once this retreat is over.
Yet on the fundamental side, there are opposing arguments for the gold market outlook. The current chaotic economic picture is positive for gold (including the potential for much greater future inflation). Investors and the public may find increasing reasons to invest in the metal given the worldwide printing of money to combat the deepest recession in over 25 years.
But famed investor Jim Rogers has pointed out recently on financial television that should the IMF, which has been considering gold sales, go ahead with that plan, the gold price may be under strong downward pressure. Yet, Rogers continues to hold gold.
Rogers also says that there may be future supply constraints in commodities such as oil and even food, as current investments in production are now being curtailed or made impossible due to the freeze on credit. This could lead higher inflation and would potentially benefit gold as an inflation hedge.
How does this sort itself out? Should the bullish weekly chart flag formation be violated on the downside as a result of gold sales or some other reason, it could present a potentially good buying opportunity at lower prices. Yet, gold would still need time to recover from such a decline before it potentially finishes the late stages of its bull market. Please see my article: Why Gold May Begin the Last Leg of its Bull Market Sooner Than You Think.
As I have been discussing for over two years on this website, the verdict for gold may be still "bull market."
Please see related posts, When Gold Speaks a Thousand Words and Bulletin: October 24, 2007 - What Now on Gold.