Submitted by Emma Davis as part of our
Lately, I've been reading about all of this buying of gold
bullion by central banks around the world.
Some would say the move is bullish for the precious metal, but
I'm not convinced. I was encouraged by the recent bounce after the
price fell below $1,400 an ounce, but it has since stalled, based
on my technical analysis.
To tell you honestly, I'm not sure in which direction the yellow
metal will move. The recent rally was more technically driven than
based on fundamentals.
There are many factors involved that could encourage the
precious metal's future direction.
If the Syria-Israel conflict intensifies into something more, we
could see some traders and institutional money move into the yellow
metal as a safe haven.
There is a direct relationship between the yellow metal and
interest rates. In other words: follow the global central banks and
you'll get a sense of where the metal may be headed.
And as long as interest rates remain low, we could see some
buying support for gold, but when rates begin to rise, prices will
Currently, the central banks are printing money, which will keep
interest rates low, and this should give the yellow metal some
Of course, for the yellow metal to move higher, we will need to
see major risk surface, such as inflation, a major conflict, or a
sell-off in the stock market.
As long as the stock market holds and moves higher to new
records, the precious metal will be under some pressure. The fact
is that as stocks move higher, investors will prefer to invest in
The chart below shows the relationship between gold (indicated
by the green line) and the S&P 500 (indicated by the
candlestick formation) since November 2012. Notice the downward
bias in the precious metal at a time when the S&P 500 was
moving higher toward a new record.
Chart courtesy of www.StockCharts.com
After pausing at the $1,460 range, the price retrenched $22.00
on Tuesday. I sense that the upside potential is limited at this
point, unless something chaotic surfaces in the world.
Gold simply remains a trade and should not be viewed as a
There may be a possibility that the metal will return back to
its previous sideways channel, bordered by $1,525 on the support
side, but I doubt this will happen as long as stocks are
For traders, it's all about the best opportunity at a particular
time - and at this time, it's not gold.
The bottom line is: with the excess liquidity being pumped into
the monetary system by the Federal Reserve and central banks around
the globe, I would look elsewhere - away from gold.
Is It Time to Look Away from Gold?
was originally published at