I provide Diggers and Drillers readers with ongoing analysis on gold every couple of weeks. Today I’ll share my latest analysis with you.
Technical analysis on gold
The gold price has been impressive since 1 December. It’s climbed from above its low of US$1,145 per ounce (made in mid-November) to a high of US$1,310 per ounce.
This has been good news for the gold miners. To date, Northern Star Resources [ASX:NST] is up 76.6%. Newcrest Mining [ASX:NCM] is up 45.3%. And Beadell Resources [ASX:BDR] is up 76.3%. Not a bad pay check for two months.
Check out the following daily chart…
As I’ve explained in the past, you buy gold as a hedge against government. The current Greek calamity is the primary reason behind gold’s solid performance. Greece has until February 28 (default day) to sort out its debt situation. As the possibility of Greece defaulting is still up in the air, the gold price remains elevated.
With that in mind, gold has still struggled to climb, close and hold above the US$1,300 per ounce resistance level on a monthly and weekly basis. I’ve said in the past, gold needs to close above this level to rise higher. Gold’s inability to hold this level demonstrates that even under the current stressful economic conditions, its day to shine is not yet here. It isn’t yet ready to truly outperform.
Here’s the summary for gold:
Blue trend lines (US$1,320 per ounce & US$1,340 per ounce): For gold to rally higher, we need to see a higher weekly closing above these targets. This may prove difficult in the face of a strong US dollar. Albeit, given the Greek situation, a run up to these targets isn’t out of the question this month. But I doubt this will happen…
MACD indicator: We’re starting to roll over again. When this indicator rolls over (as shown by the red boxes above), the gold price crashes. The MACD indicator is rolling over AND at a historical high point…this spells a disastrous outcome for gold punters.
US$1,180 per ounce support level: This is the major support level. Once gold falls through this support level next time, I don’t see gold making a comeback this year. It’s likely, at this stage, punters will be less worried about Greece’s debt situation.
Where’s gold going now?
The gold price is currently hovering around US$1,260 per ounce (today US$1,235 per ounce) for a reason. Punters are waiting for Greece’s debt situation to become clearer.
German Chancellor Angela Merkel expects Greek financing talks to drag on for months. This tells you that the new government will likely obtain a one year debt extension (or a deal in some form or another) before February 28.
Once it’s sorted and announced to the market and the immediate default risk is off the table, gold will fall off a cliff. There’s only one question: How low will it go?
The Aussie dollar may offer a little assistance to a sub-US$1,000 gold price. A couple of weeks back (when it was trading at 82 US cents), I showed you that we should see the Aussie dollar fall to US 74 cents this year, and possibly test the 63 US cent support region.
The bottom line is, my primary gold target of US$931 per ounce and secondary target of US$817 per ounce may be conservative.
It’s possible we’ll see gold fall much further this year. As gold tumbles lower, short positions will increase, the US dollar will strengthen, the search for yield will go on, and higher interest rates will loom in the US. The Fed will raise rates (most likely around the middle of this year) or it will be blamed for causing a stock market bubble in the future. It also wants leverage up its sleeve for the next financial crash.
The bottom line: Sell all gold stocks now. You’ll be able to buy them back at much cheaper levels in the future. This recent rally won’t last…
Diggers and Drillers subscribers will know when the bottom comes; I’m following this story extremely closely.
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