The January FOMC statement indicated that the Fed funds rate will be kept at 0-0.25%. The U.S. economy recovered at a quicker pace than most economists expected in the last quarter of 2009. The U.S. gross domestic product surged 5.7% for Q4 of 2009, well above market consensus of 4.5%-4.8% and it is the largest quarterly growth since the third quarter of 2003 at 6.9%.
Since early December 2009 the greenback has rebounded 8% as measured by the Dollar Index which has risen from a low of 74 to touch 80. The strength in the US dollar has put caused some pressure on the price of gold. However the lower price in gold seems to be attracting physical buyers from Asia, particularly China. In Asia, premiums for gold bars jumped to their strongest since December 2008 as weaker bullion prices ignited buying from investors and Chinese consumers ahead of the Lunar New Year. Demand for gold should be supported by buyers in China ahead of China's Lunar New Year this month and seasonal demand from India tends to increase in February and March.
Sarkozy, the French President, is quoted as saying that there should be a return to the Bretton Woods standard and the France would pursue the establishment for a new global monetary order at the center of its agenda in its chairmanship of the Group of Eight next year. While I don't see that this is will happen, it does show that the role of gold is becoming more important.
The sell-off in gold seems to have broken through some short-term technical indicators which may prompt further selling. However, the long-term trend remains very much intact and if gold falls further, it may create a wonderful buying opportunity ahead of the next leg-up.
While there are several ways in which investors can participate in this market, it is advisable to first accumulate a holding of the physical metal. And, traditionally the best way to do this is to acquire gold bullion. Investors should view gold to be part of their savings and allocate a portion of their funds to developing a precious metals portfolio that includes a holding of gold. Other ways to buy gold include gold bullion coins such as the Krugerrand, the American eagle, and the Canadian Maple Leaf etc. They can also invest in a gold exchange traded fund (ETF) and gold shares. While there are several ways in which investors can participate in this market, it is advisable to first accumulate a holding of the physical metal. And, traditionally the best way to do this is to acquire gold bullion. Begin to accumulate gold on a regular basis. You can do this, month-in and month-out, or bi-monthly or every quarter depending on which of these alternatives better suits your budget. View gold to be part of your savings.
Technicals
While the long-term trend in gold still remains very much intact, since the December highs of $1225, gold has retraced 16%. It is now trading close to a support level (S1) at $1075. As the US dollar may continue its run, gold could experience further downside. However if it falls to $1025 which almost coincides with the 200 day moving average at (S2), I believe that this will offer buyers a wonderful opportunity to enter the market.
ABOUT THE AUTHOR
David Levenstein is a leading expert on investing in precious metals .He brings over 29 years experience in futures, equities, forex and bullion. And, although he began trading silver through the LME in 1980, when it comes to gold, he has traded gold bullion, gold coins, gold shares, gold ETF, gold funds and gold futures for his personal account as well as for clients. Over the years, David has been published in dozens of publications and has appeared on CNBC and Summit TV (South Africa), and is a regular guest on JSE Direct, a premier radio business channel in Johannesburg, South Africa. He is also a regular commentator on www.kitco.com and www.mineweb.com David has lived and worked in Johannesburg, Los Angeles, London, Hong Kong, Bangkok, and Bali.
For more information go to: www.lakeshoretrading.co.za
Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice.