I have been a major supporter of gold for the past decade during the run-up in prices, but I can’t say I’m that confident at this moment.
Of course, there are still the issues in the eurozone, tension in the Middle East, and the crazy man running North Korea, but I sense the party may be coming to a halt for gold investors.
This is sad, but the shining yellow metal has made money for investors for a decade, so perhaps it’s time to take a siesta.
Here’s my thinking.
The U.S. economy is on the mend. The global economy is recovering; albeit, there are some concerns in China and Europe. The world’s central banks have created a low interest rate environment that has helped to drive global economic renewal and recovery in stocks. It’s all about risk and return at this juncture. While I feel the eurozone could still offer a surprise and America continues to tread on massive debt accumulation, gold is not seen as a viable investment opportunity at this time. Unless the stock market reverses course to the downside, the immediate outlook for the yellow metal looks dull in my view.
Even the recent rally back above $1,600 an ounce on the Cyprus concerns was short-lived and void of any major momentum. There was no reason for the metal to hold above $1,600.
While just recently there was talk of gold retracing back to the high-$1,600 level witnessed earlier in the year, I now feel it could be a challenge for the metal to hold $1,500.
Just take a glance at the chart below. Note the relative divergence between the move of the S&P 500 since November 2012 and the downward slide of gold as indicated by the blue lines. Clearly, the equities market and gold are moving in opposite directions, based on my technical analysis.
Chart courtesy of www.StockCharts.com
Now, I’m not saying the yellow ore is dead; but as long as the global economy continues to improve, I just can’t see a reason why investors would want to hold the metal. Of course, there will be the traditional safe-haven play of gold, but even this appears to be fading. It seems like investors are more inclined to buy large-cap dividend paying stocks than gold.
So for now, unless the world is met with major bad news, my feeling is that gold may be headed lower on the charts and could eventually take out $1,500, only to move lower.
Silver, on the other hand, could spike under the right situation, which you can read about more in “What Will It Take for Silver to Snap out of Its Coma?”