Given what we have seen so far and looking ahead, I just don’t see gold as a buy-and-hold strategy at this time. Yes, there’s money to be made, but it’s going to be for traders only.
The recent break below $1,300 an ounce and the subsequent rally to the current $1,325 level is an example of such a trade, not a new trend that’s developing on the charts, based on my technical analysis. The chart below shows the potential declines in the metal towards $1,200 and $1,100 an ounce.
Chart courtesy of www.StockCharts.com
Many gold supporters will counter that China is hoarding gold and India will soon pick up its buying. While I don’t argue against this, I just don’t see the yellow metal retaining its luster at this point unless a war breaks out in Ukraine and Russia intensifies its threat. If this should happen, it would drive Russia’s gross domestic product (GDP) growth lower and could result in the fragile eurozone and European economies retrenching back into a recession that just ended.
I wrote about gold several weeks back as a trading opportunity on dips below $1,300. I continue to hold on to that belief, but longer-term, the yellow metal could fade and fall back towards $1,200 or less.
My thinking is that inflation is nowhere to be seen in the United States, China, or Europe. (In fact, deflation may be more of a concern here.) And unless inflation picks up, the yellow metal isn’t going higher on a sustained move. That’s one of my top reasons why gold may head lower.