Loading ...The $70 rally in the gold price after the Swiss referendum last week has raised more than a few eyebrows in the investment community. On the one hand, the price of gold should have gone down and not up on this bad news. On the other, the scale of the leap was substantial and silver’s advance proportionately very much stronger.
Is this a turning point for precious metals now more than three years into a correction phase? Certainly the more bearish calls for $800 gold now look to have been the classic bloopers always dropped at market bottoms by inexperienced analysts who may now have to take up a new profession.
Bearish calls
The technical analysts from Goldman Sachs looking for $1,050 were also off the mark, though those who saw $1,150 as the bottom were pretty much spot on as gold hit $1,141 an ounce.
What caused the sudden rebound in prices? The only answer that makes any sense to ArabianMoney is huge short covering after the Swiss referendum. In layman’s speak pessimistic investment for lower gold prices reached a peak before the referendum was rejected but was then left scrabbling to cover these positions as there were no more sellers left.
It can be a very expensive error to bet the wrong way on gold prices as the leverage of these market moves is more than thirty times, so when you have got to go you have really got to go! Likely more than a few traders got badly burned by being on the wrong side of the gold trade and may have learnt a lesson.
This is a classic market reversal moment. The beating up of the gold price has gone on long enough. Sure the US economy is looking better and the dollar the only game in town for forex.
Money printing
But the world is still awash with money printing and there is one other currency with good prospects in this outlook. Even if gold remains static in value against the US dollar it is a protection against the collapse of everything else.
There will also still be those who doubt that the US dollar has such a brilliant outlook ahead. US bonds are massively overpriced and paying record low dividends. You can say exactly the same thing about equities and the US stock market bubble. Hedging this risk means buying precious metals. You don’t have much alternative, outside of the also risky derivatives complex.
Will there now be a euphoric rally in gold and silver prices over the next couple of years as bonds and equities face their nemesis? Timing these rallies is a fool’s errand. But buying cheaply priced assets before they rise in price is how most investors get rich.
Wall Street lost the plot several chapters ago…
http://www.arabianmoney.net/gold-silver/2014/12/07/did-the-massive-volatility-in-precious-metal-prices-after-the-swiss-refere
ndum-mark-the-bottom-of-the-long-correction/