Thursday, July 12, 2012


Gold is at a large inflection point here.  There are convincing arguments on both sides on what direction it is about to go.  The European crisis and possible contagion along with possible QE3 out of the Federal Reserve could fuel gold higher.  A deflationary wave could knock gold down, and the insatiable demand for gold may well have peaked for a while with an increased supply of gold hitting the market.

There are a number of technical signs that point to a major decline being imminent.  Some technical breaking events are occurring for the the first time in many years.  There is a lot of built up energy here to be released, but that can lend itself to either direction.  This is a large inflection point that could go either way.

In my opinion, gold has a higher likelihood of going to $1000-1200/oz in the next 6-12 months than reaching new highs at $2000/oz.  Currently, gold is trading at about $1560/oz.  If it were to rise over $1630, then the bulls may well have won the battle, so that will be the key number to watch on the upside.  $1540-1550 is the key level to watch for a downside break.  Break that, and it will probably be headed to $1400 quickly.

I was a strong advocate for holding 5-10% of your portfolio in gold for the past decade.  Over the last couple years, I think it has grown into a bubble, much like the technology bubble in 1999.  I am not sure that the demand for gold can reach the same levels it has reached the last couple of years.  I imagine a glut of supply has and will be hitting the markets from people searching to bring gold to market at these high prices.

If you have gold in your portfolio, it might be prudent to scale it back now, or at the very least re-balance it to the original percentage(assuming you have gained from it over the past several years.)

* I am not a registered financial advisor.  This blog is for entertainment purposes only.  Please consult your financial advisor before making any decision with your portfolio.

1 comment:

  1. Very keen observations. I wish I held my gold. Sold it back when it was like 600 an ounces. Just never imagined it would go insane like that.