Why is Gold Hesitating?
By Jake Bernstein from MBH Commodities 04-08-2002
As readers know, I have been long term bullish on gold (and other precious metals) for many months. My recommendations to buy gold mining shares date back to the lows in these stocks. And my advice on platinum and palladium has been similarly bullish. While I think that the best is yet to come in these markets, there is some cause for concern about the SHORT TERM prospects, particularly for gold. As I pointed out to you last week, there is good reason to believe that gold prices could decline over the next few weeks as the market follows a well established seasonal price pattern to the downside. There are other short term concerns that may be warning us of a possible correction down in gold prices. These concerns are as follows:
• As this report is being written (8:15AM Chicago Time) stock prices have declined sharply in the US and Europe. In spite of the fact that the decline has been fairly steep, gold prices are only reacting minimally to the upside. This is bearish, particularly in consideration of the fact that the decline has been rather large in major stock indices.
• Middle East violence continues to be a destabilizing force that should, under truly bullish conditions, drive concerned investors to buy precious metals as a temporarily safe haven. This has not happened. Even after a weekend of more violence and the threat of an Israeli 2nd front in the struggle, gold has not responded to the upside.
• The surge in crude oil prices has not resulted in a surge for gold prices. I consider this also to be a short term bearish consideration for gold prices. And finally,
• The current time frame has been one during which equities tend to rally. Should the sharp decline now in process reverse itself to the upside, gold prices could take a short term tumble. Be careful if you're long for the short term or intermediate term.
What Would Change my Mind?
I would alter my short term bearish opinion if gold prices can CLOSE ABOVE their February and April highs to date. On the other hand, the inability of gold prices to rally even given the considerable fundamental reasons for it to do so would be a significant bearish factor, particularly if New York June Gold futures were to CLOSE BELOW short term support in the 296 area. Next support is likely at about $280 if the market closes below 296.
Conclusion
I reiterate my cautionary advice. Gold will be a much better buy if it either breaks out ABOVE the resistance levels stated above or if it declines to a valid level of technical support. During this time of the year the seasonal odds for gold are bearish.
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Best Regards, J.T. |
