Global Risks Creating Opportunities in This Precious Metal
While the stock market has been struggling this year, under the radar, gold has been moving higher.
The tense stand-off in Crimea is clearly adding some support to gold, as an outbreak there could drive the precious metal much higher in the short term.
The geopolitical risk also includes the tensions between Israel and Iran in the Middle East.
On the fundamental side, we have China continuing to amass significant positions in physical gold, as the country looks to diversify its massive $3.0 trillion in reserves away from U.S. bonds. Buying in India has stalled, but the country continues to be the world’s largest market for the precious metal.
The one major supportive variable that’s missing is inflation, which is a proven driver of gold prices. The reality is that inflation is benign in the United States, along with much of Europe and Asia.
With gold currently holding just above $1,300 an ounce, the precious metal is at a crux. Stabilization in Crimea would remove some of the risk discounted into the price, but I doubt this will happen in the immediate future, as Russia has set the process to annex Crimea from Ukraine.
We know that the contested move by Russia doesn’t sit well with the United States or the United Nations, yet I really do not see Russia backing away for now. That is unless the economic sanctions put forth on Russia intensify and begin to send the Russian economy into a downward spiral.
But until we see a resolution in the stand-off, I expect gold prices will continue to incorporate some risk discounted into the price.
In my view, the direction of gold will be dependent and focused on Crimea in the near-term, as the fundamental supports do not show enough to drive prices higher at this time.
A look at the chart shows $1,300 as a key level for gold. A break below could see strong buying support at $1,200–$1,250, representing an excellent buying opportunity. This would likely occur if Russia decided to leave Crimea, which so far, seems unlikely at this point.
Chart courtesy of www.StockCharts.com
On the upside, we see major resistance around $1,400, which was last broken in August 2013. A break could see gold move towards $1,500 in the best-case scenario, based on my technical analysis.
At this time, I would suggest investors look at weakness toward $1,250 and below as an entry point for a trade that can be sold into strength towards $1,350–$1,400.
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