Historically, gold has been viewed as a safe-haven investment and an inflation hedge, and has risen when the stock market and the dollar are bearish. However, we have seen a shift in that correlation as gold and silver have both been holding up well amid the recent rally in stocks and the U.S. dollar. Conditions look good right now for gold bugs, and I’m recommending short-term bullish positions in gold as well as silver right now.
After rallying 5.3 percent last week, gold pulled back slightly on Monday, April 27, to $908.20 an ounce and is currently trading under $900. Swine flu panic caused downturns in stocks and most commodities. However, I think the prospects for gold still look good, and influences on the gold market are most importantly coming from action in the stock market. I currently recommend using Monday’s pullback and a further dip as buying opportunities.
Last week, Nasdaq futures posted a new high for the year, but the S&P 500 didn’t quite get there. Now, the swine flu epidemic is causing a setback in stocks that could mark a near-term top in the recent rally. As the outbreak gets even more press, I see stocks continuing to struggle and the uncertainty could cause investors to flock to gold. Gold and silver look like good buys regardless of what the dollar does.
As you look for possible trading strategies, watch the 100-day moving average in June gold futures at $893, and the 200-day moving average near $869.50. I don’t think we’ll get down to the 200-day moving average, but I would look to buy near $893 – $894. I recommend putting a stop at $879.50, the low on March 21, and also below $865.50. If the market rallies as I anticipate, look to take profits above the April 2, 2009 high at $931.80. If the market can close above that level, $970 comes into play as the next upside target, the high on March 20.
Besides the swine flu news, we do have some economic data that could influence price action in metals this week, namely consumer confidence, first-quarter GDP, and the conclusion of the two-day Federal Reserve policy meeting on Wednesday. The target Fed funds range is expected to remain at zero to 0.25 percent, but market participants will be watching language from Fed policymakers about the state of the economy, and whether past measures are working. If stock indexes break on the news and have formed a near-term top, I think gold and silver will be beneficiaries.
Silver has likewise been holding up well, with the July contract currently trading just under $14 an ounce. My belief is that you also want to buy silver on dips. The 100-day moving average in July silver comes in at $12.47, while the 200-day comes in at $12.21. I recommend buying on a dip to $12.47 – $12.50, with a stop at the 200-day moving average. If the market rallies up to $13.88, I would recommend taking profits on half your position. A close above that level would be the next stop.
The dollar is seeing safe-haven buying on the flu news, but more important than what the dollar does is the stock indexes. Keep watching the data for direction this week, and feel free to call me for further analysis or to develop a customized trading strategy in these or other markets.
Greg Perlin is a Senior Market Strategist with Lind Plus, Lind-Waldock’s broker-assisted division. He can be reached at 800-437-4189 or via email at gperlin@lind-waldock.com.
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