April 16th, 2009
Recently, Gold prices have been trading below $900/oz after trading over $1000/oz in late February. This weeks benign CPI and PPI data have shown that we are currently in a deflationary environment and that inflation will not be a concern in the near term.
For the last few trading sessions, gold prices had been in a trading range between $880/oz and
$900/oz. Currently, spot gold has broken through $880/oz and is trading around $874/oz. Gold looks much cheaper now, and we know inflation will eventually be a problem, should we buy?
The answer is no. The technical momentum is not positive for gold prices right now. We tested the 200 day moving average at $870/oz back on April 6-7, and we are headed back down in that direction, which isn’t a good sign. Lots of CTA’s (Commodity Trading Advisors) use the 200 day MA as their stop, and if we cross through we are likely to see accelerated selling pressures. In the near future, it doesn’t look like inflation will be a problem, so Gold won’t move up on that. If you think the stock market is likely to crap out again in the near future, that would give gold a “safe haven” boost, but you’re better off shorting stocks in that scenario.
Don’t get me wrong, I eventually think Gold prices are headed much higher, but its hard with the stock market showing strength and deflation rearing its ugly head for me to buy Gold right now. I’m going to wait this one out for now. If we bounce off the 200 day MA and the stock market takes a big nosedive, I may reconsider.
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