The price of gold prices found support at its key 200-day
moving average Monday as the dollar strengthened ahead of the
Asset managers say gold investors should prepare to trade it
differently depending on whether President Barack Obama or Mitt
Romney wins Tuesday.
Spot gold prices rose 0.52% Monday to $1,685.70 an ounce.
SPDR Gold Shares (
), tracking a 10th of an ounce of bullion, rose 0.77% to 163.38
after gapping down 2% Friday. It's finding key support at its
200-day moving average, which has provided price support many
times in the past since it started trading eight years ago.
"This looks like the type of capitulation we expect to see in
a long-term bull market," said Janice Dorn, co-founder of
Jtrader.us. "As soon as the longs get washed out, gold is likely
to continue its ascent. Right now, it seems that the commercials
(traders) who were heavily short will need to cover before the
ascent can begin."
Market Vectors Gold Miners ETF (
) shed 0.06% to 49.73. It's broken below its 50-day line, but
hasn't reached the 200-day. It's consolidating in a sideways
Market Vectors Junior Gold Miners ETF (
) was flat at 23.21. It's also finding support at its 200-day
PowerShares DB U.S.Dollar Index Bullish (
) climbed 0.25% to 22.13. It's still trading below the 200-day
line, which is bearish.
"It should also be noted that the dollar is hitting a
six-month high against the yen and a three-week high against the
euro," Dorn said. "Dollar strength generally correlates inversely
with strength in gold."
Paving The Path For Gold
If President Obama wins re-election, gold prices will rise
again because it increases the likelihood Federal Reserve
Chairman Ben Bernanke will serve another term, says Jeff Sica,
president of SICA Wealth Management in Morristown, N.J.
"Bernanke will continue to have full reign with the potential
of another term in which he can execute his QE (quantitative
easing) to perpetuity," Sica wrote in a client note. "This will
continue to weaken the dollar and increase the price of gold. The
Obama Administration is firm in their opinion that the economy is
improving, so I see little chance of them changing course in the
next four years."
If Romney prevails, Bernanke will likely be booted out when
his term expires in 2014, which would be bearish for gold, said
"(Romney) doesn't agree with the policy of printing money to
accelerate the economy," Sica wrote. "This will inevitably result
in the dollar strengthening short term, which has a reverse
correlation with the price of gold, as the dollar strengthens the
price of gold often declines."
"I also see a significant percentage of short-term momentum
investors who will be quick to sell gold and silver as the
downside momentum accelerates on dollar strength without
consideration of the other fundamentals which support the price
of gold, such as its safe haven/ secondary currency status," Sica
Gold has been going up and down alongside the stock market. If
Romney wins, equities are likely to rise, the Virtue of Selfish
Investing LLC wrote in its daily client note. Equities would
likely take gold with them.
"A Romney victory is liable to spur a rally in equities as he
is seen as probusiness and an advocate of smaller government,
although in an era of $1.5 trillion budget deficits, this is a
relative term," Virtue of Selfish Investing wrote Monday. "An
Obama victory could spark a move in either direction.
"A continuation of the Obama Administration is viewed as
negative for business and economic growth, sparking a sell-off,
but it will also likely continue to fuel the need for
quantitative easing that might be seen as pushing asset prices
Follow Trang Ho on Twitter @TrangHo