Gold has rallied above $1,000 an ounce this month, and I think prospects look good for the bulls. The market could be forming a short-term top, however, and I see a correction likely to give investors an opportunity to purchase at lower levels. Heading into 2010, I think the threat of inflation will lead to another late-year push higher that could take gold to $1,150.
The Federal Reserve has its two-day policy meeting this week, and we’ll have to see how that plays out after the meeting ends on Wednesday, September 23. Watch for words or actions from the Fed that could boost the U.S. dollar, and cause a setback in gold in the near-term. If gold does sell off, I would recommend buying the dip as prospects remain bullish for gold into next year. Look for near-term support at $996, and $986 – $982 on a sell-off. A correction could take gold down to $975 – $970, which would be a good place for aggressive traders to establish long positions.
Inflation is likely to be a threat, and as gold is typically an inflation hedge, that should keep buying interest strong. The Fed is printing so much currency we are bound to see it. We could even see interest rates eventually head back toward the levels of the 1980s. However, I don’t see the Fed raising short-term interest rates until well into next year, and the dollar should remain weak until rates start moving up. The government seems to think its ok to decimate the dollar for political reasons.
I think gold is actually undervalued considering the amount of potential inflation we could encounter. Citigroup recently predicted gold could run up to $2,000 by the end of next year as central banks around the world flood money into the system to shore up the global economy. It will result in either an inflation shock, or further economic deterioration and political instability, said a Citigroup analyst. Either way, gold should benefit.
We have other strong fundamental reasons to be bullish gold. China has been stockpiling gold, and Hong Kong has moved their physical gold reserves from London into a new storage facility in their own country. The Indian wedding season also tends to bump up demand for gold at this time of year, although retail gold sales haven’t been robust. I think gold is likely to reach $1,150 by the first quarter of next year, and we could see $1,500 in 2010, based on my technical projections.
That’s my long-term outlook, but gold isn’t likely to move straight up. If you are currently holding a long position in gold, I would recommend buying puts as a hedge in case of a correction, and continue to hold gold for a rally into next year. I also think silver is way undervalued, and I’m bullish silver too.
There are a variety of strategies using futures and options you can pursue in these markets based on what’s taking shape in the days and weeks to come. Please give me a call to discuss your particular situation.
Dan Pavilonis is a Senior Market Strategist with Lind Plus, Lind-Waldock’s broker-assisted division. He can be reached at 888-801-9302 or via email at dpavilonis@lind-waldock.com.
Futures trading involves substantial risk of loss and is not suitable for all investors.
Past performance is not necessarily indicative of future trading results. Trading advice is based on information taken from trade and statistical services and other sources which Lind-Waldock believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder.
© 2009 MF Global Ltd. All Rights Reserved.
