Gold

After officially moving into a bear market in April, gold prices started moving up last week as fears of a Fed tapering and the ensuing turmoil made the markets jittery. But as better-than-expected economic data came in yesterday and the Federal Reserve Bank announced its plans to continue with its bond buying program, gold fell by nearly 1%.

We are startled by the silence from the gold bulls in the last few months. We come across many analysts and investors who believe in the safe haven feature of commodities, especially gold. We do not deny that gold has a primal quality to it – which makes most investors have a faith in the yellow metal. But looking at a long term chart of gold spot prices, we feel gold may not have corrected completely.

 40 Year Gold Price chart. Notice the sharp uptrend from 2006.
40 Year Gold Price chart. Notice the sharp uptrend from 2006.

We are not secular gold bulls and we know that the discerning investor does not buy and hold commodities for the long run. Commodities are tactical investments, meant for short-term profit taking. With the fall in prices since the beginning of the year, there is a short-term opportunity in gold. While gold prices were in a free fall, the reversing trends seem to have some wind beneath its wings. Though the economic news was positive this week, with uncertainties in stock markets (which are at record highs) from the debt ceiling and the emerging markets, gold, we believe, will turn around again. It is trading at $1,364.12/oz. now and we see an upside of 10% in the next 3-month time frame.

India is still the largest importer of gold globally, but with recent additional taxes from the Indian government (now a total 10% import duty), global prices have taken a further hit. With that priced into the market already, we do believe a short-term tactical investment is possible.

Gold Price Year to Date Gold Spot Prices. The last 9 months may provide some short term opportunities
Gold Price Year to Date Gold Spot Prices. The last 9 months may provide some short term opportunities

However, we ask investors to be careful with the longer term trend and keep an eye on positive macroeconomic news, which may not bode well for the metal.

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