Has Gold Lost Its Way?

April 3rd, 2012
in gold, silver, miners

Written by Goldfinger

How do you make an educated investment decision in gold when everything seems upside down?  Gold seems to have lost its way and correlations. And miners, whose movements are partly driven by gold prices and partly driven by equities - seems to have rolled over ignoring any increases in either gold or equities markets.

Yet, I am a momentum investor, and use charts to time entry.  I have chosen not to be a buy-and-hold player for miners in this wobbly and unpredictable market - having been out of the metals market for a few weeks now.  This Yahoo chart shows what has happened to 5 of my favorite metal stocks in the last month.

Follow up:

NGD-New Gold Inc.    NG-NovaGold Resources Inc.   AG-First Majestic Silver Corp   EXK-Endeavour Silver Corp.   SVM-Silver Corp Metals Inc.

While I still see downward tendencies there, we seem close to a bottom.  The overall market sentiment is positive at the moment.  What about QE3.

Federal Reserve Chairman Ben Bernanke in his most recent speech said:

Importantly, despite the recent improvement, the job market remains far from normal; for example, the number of people working and total hours worked are still significantly below pre-crisis peaks, while the unemployment rate remains well above what most economists judge to be its long-run sustainable level.  Of particular concern is the large number of people who have been unemployed for more than six months.

The metals markets went up that day - headlines suggesting the Chairman was heading towards QE3.  Days later, metals dropped back when players realized that a little too much was read into the speech.

So obviously gold and precious metals are indexed to quantitative easing - check

Yet QE3 may simply be an illusion - and investors and traders will be SOL in trying to time a market entry based on guessing when (or if) the Fed will begin quantitative easing.  So what dynamic will govern gold's next leg up?

Gold is not correlating to any of its past playmates (SPY, 10 year treasuries, and oil).    Gold itself must signal my entry point - I await a sign.


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