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Gold Price Prediction
Pinnacle Digest writes: Gold has enjoyed highs and lows in 2012. It has touched a yearly low of $1540 and a one year high of nearly $1800 - all in the span of 12 weeks. Uncertainty surrounding this asset has been at decade highs ever since the series of margin increases last year.
Clif Droke recently stated that “Analysts and investors are divided as to what was the impetus behind the late summer rally for gold. Was it fear of a European-led global economic recession? A slowdown in China? An anticipation of loose central bank monetary policy? The reasons behind the rally are debatable but the gains gold has made since July aren’t.”
In his recent article Droke addresses the current state of gold and whether or not the yellow metal has plateaued for the year given its recent sharp decline.
Droke stated “The first piece of technical evidence weighing against a continued gold rally (in the near term) is the relative strength indicator for gold. This indicator compares the daily gold price with the daily closing value of the benchmark S&P 500 stock market index. The implication behind the gold relative strength indicator is that “smart money” traders and investors are expected to allocate the bulk of their money into whichever of the two assets – equities and gold – are in a position of relative strength. The gold relative strength chart is quite revealing. As you can see here, the chart has been making a series of lower peaks since January and hasn’t confirmed the recent gold rally.”
Droke’s analysis, after reviewing the relative strength indicator, is that gold traders should be taking profits at these levels and raise stop losses as a way of minimizing any downside exposure. He also does not recommend anyone enter a long position in gold at this time. In his view, gold is due for further correcting and at best, will be stuck in a short -term trading range.
Another cause for concern, according to Droke, is that investor sentiment toward the yellow metal is far too bullish. From precious metal ETF activity to gold purchases in India, interest and sales are way up, which doesn’t make a strong case to buy the yellow metal. Being a contrarian, especially when it comes to precious metals, has always been a ‘best practice’ according to many analysts.
Lastly, Droke explains that gold hit a dramatically oversold reading in the summer when it touched $1540 an ounce. And when such a reading occurs during a long-term uptrend, typically a rally in price lasts for 6 to 9 months. Gold only experienced a rally of about three weeks following its yearly low and dramatically oversold reading this summer.
Click here to read Droke’s entire report.