Posted on 01/31/2014 2:50:30 AM PST by Red in Blue PA
2014 brought a role reversal of sorts for gold and equities, with the metal higher and stocks lower, in contrast to last year’s performance.
With January drawing to a close, can gold hold its gains and will equities continue to fall? Technical charts may offer some clues, analysts said.
As of 1:20 p.m. EST, gold for April delivery was $18.60 lower to $1,243.60 per ounce on the Comex division of the New York Mercantile Exchange
“Gold is returning to its historic role as a safe haven as we’re seen problems globally,” said Darin Newsom, senior analyst at Telvent DTN. “Equities really needed a correction, they’ve been way overvalued. A lot of technical charts show they’re way overbought.”
Concerns about weakness in China’s economy and the selloff in emerging-market currencies are the fundamental reasons behind the recent rebound in gold and the break in equities, analysts said, with Newsom adding this inverse relationship between gold and stocks is common historically.
Newsom said he believes this diversion has more room to run, at least in the short term.
On the weekly April gold futures chart, Newsom said the market has room to run higher, with the first level of resistance at $1,310, then $1,350.
While gold may run higher, equities could continue to crumble. Newsom said based on Dow Theory, a type of technical analysis, the Dow Jones Industrial Average could be in for quite a fall if the market is truly reversing. “If we’re in a reversal, we could see a retreat all the way to 13,220. That’s a long way to go,” he said.
(Excerpt) Read more at forbes.com ...
Gold stocks? really? why gold stocks as opposed to the physical stuff?
Not gold itself, but instead gold mining stocks. The Gold mining sector is down 70% and is so out of favor people will wince even if you just mention it to them. When a sector becomes so out of favor, that is usually the time to buy. Some of the stocks pay a 3% dividend while you wait. Doing this is not for the faint of heart as these stocks could fall farther, but I am willing to take the risk, and even buy ore should they do so.
IMO, it is a no brainer with the market being at such stratospheric levels in terms of valuation. FB at 20x plus sales is simply bubble territory and is reminiscent of 2000 to me.
INO, one must ask themselves what ill happen to the market once interest rates rise.....as they eventually will. A government cannot print money without inflation following it. Look at Argentina in recent days as an example of that.
The market definitely seems bubbly at this time. the whole economy is being run on bullshiite though and washington D.C. has a never ending supply of it so I have given up trying to guess what's going to happen next. I think it will behave exactly as they want it to and we will all continue believing that that isn't the case at all.
I do think that the gold market is heavily manipulated as well and by people who don't want to see gold competing with the stock market or their fiat currencies so I am somewhat skeptical of an iminent gold bull market even though it seems logical. I think I like cash right now.
I would expect another financial crisis of some kind right around election time however.
I made my first ever purchases in gold mining stocks in the past few weeks. The stocks are down 70% and are so out of favor that my contrarian nature was curious. Then I looked at alternatives in the stock market and it was a no brainer for me.
I still have most of my money in the market, but have moved a good portion to gold mining stocks and will do so further if the stock market becomes even more overvalued or the gold miners fall more.
Those in DC and the Fed can only mask inflation for so long. And not too long from now, we will have a big round number coming down the road at us: $20 Trillion. So even if we do not have some EM collapse, this number will once again shine the spotlight on our monetary irresponsibility.
If you had told me 5 or 10 years ago, I would ever be investing in miners, I would have called you crazy. But the valuations of this sector are simply so compelling, and at this point in history, it is comforting to hold these stocks while the govt is printing money at full speed.
Worst case scenario is I hold these stocks for a 3% divvy or they actually go down. However, I do not see that being the case over time (3-5 years), as sectors which are so out of favor typically outperform going forward. That’s what makes investing fun.
I think that we will see Gold drop quite a bit more in value. The Federal Reserve doesn’t want to lose it’s shorts, pants and suspenders when it has to repatriate Gold back to it’s real owners..
If our spending continues (and I see no signs that there is any serious effort to reign it in), then at some point it is quite possible that the US Dollar will not longer be the reserve currency of the world. If this happens, it is katy bar the door.
China is buying gold mines around the world, and they think long-term versus our short-term thinking. People can criticize China for a lot but they do think long-term and in this way are far smarter than our politicians.
And even if gold does fall, that will cause some gold mines to become unprofitable which will decrease the supply of gold, which will in turn increase the price. So we may fall but I do not think by too much. But then again, I am not going to try to forecast the price of gold as that I a fools game.
The price of gold will stay the same. It always has.
Sometimes it goes up a little or down a little in trendiness and bull or bear markets, but the dollar will always continue to go down, faster and faster then ever.
An interesting piece on gold:
They report remarkably little change over 2,000 years. The annual cost of one Roman legionary plus one Roman centurion was 40.9 ounces of gold. The annual cost of one United States Army private plus one Army captain has recently been 38.9 ounces of gold.
http://www.nytimes.com/2013/07/28/business/budging-just-a-little-on-investing-in-gold.html?_r=0
Ping
I love mining stocks. When metal prices drop, they drop. When stocks drop, they drop.
Gold is much higher than when I bought mining stocks, but those stocks are much lower than when I bought them.
They have been going down for 2 years plus now. Have high levels of debt, projects which must be canceled, and nations hostile to them. Sounds lime a terrible thing to invest in, but at some point a bottom will be reached where even the worst news is baked into the cake. I **believe** we are close if not already past that point.
Fingers crossed.
Good article, thanks for the link.
It concludes:
“A small sliver (of gold), such as the 2 percent weight in the world market portfolio, now makes sense to me as part of a long-term investment strategy.”
Which raises the question: what would happen to the price of gold is most investors (including insurance companies and pension funds) adopted this strategy?
Stock market futures are down 1% this morning. If we see a few more days lime this, you may not have to ask “what if?” Any longer.
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