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Gold Prices Take On a New Shine

26 July 2013 in Trading Ideas

Don’t look now, but one of the worst-performing assets of the first half of 2013 is showing signs of life.

The price of gold has surged 13% in a little more than three weeks, including a jump of 3.3% on Monday that represented the metal’s biggest gain of the year. The bounce followed gold dropping by more than one-third in a nine-month period to hit 34-month lows.

The recent rise has also lifted the shares of beaten-down gold miner stocks, as well as other gold-related investments. Our Precious Metals motif, which has an 88% focused weighting with gold-related equities, has gained 17.1% in the past 30 days, but is still down 37.4% so far in 2013. During those same timeframes, the S&P 500 has increased 7.9% during the past 30 days and 17.2% in 2013.

precious metals motif The reasons bandied about for gold’s recent renaissance vary from the fundamental to the technical. The Wall Street Journal suggested that Monday’s bump was due in part to the sweeping victory over the weekend by Japan’s ruling Liberal Democratic Party, which was seen by investors as an overall approval for Prime Minister Shinzo Abe’s focus on loose monetary policies that have been aimed at sparking growth in the world’s third-largest economy.1

As the Journal noted, gold prices have benefited from global easy-money measures. Investors often flock to the safety of hard assets like precious metals to safeguard their wealth from risks like higher inflation and weaker domestic currencies that are associated with loose monetary policies.

But it also may be that gold is just hitting its special time of year. Mark Newton, chief technical analyst at Greywolf Execution Partners, has noted that gold prices have risen in the August-to-October period in 10 of the past 12 years. He expects the metal to go 11 for the last 13.2

Longer term, the views seem to be less sanguine. Adam Grimes, chief investment officer at Waverly Advisors, sees the metal continuing to follow a “longer-term bearish technical structure,”2 while Goldman Sachs said in a report this week that it expects continuing price declines, given improving economic forecasts for the US and a less accommodative monetary stance from the Federal Reserve.3

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1Tatyana Shumsky and Matt Day, “Gold Settles Above $1,300,” WSJ.com, July 22, 2013.

2Tomi Kilgore, “Gold’s Rally Is No Head Fake,” WSJ.com, July 23, 2013.

3Debarati Roy & Nicholas Larkin, “Gold Retreats From One-Month High After Rally Spurs Sales,” Bloomberg.com, July 23, 2013, http://www.bloomberg.com/news/2013-07-23/gold-swings-near-one-month-high-as-price-rally-may-hurt-demand.html.

  1. 19 Aug at 6:44 pm

    With gold apreciating at about 8% over the last month, it makes it really hard to not invest into it.