Gold prices are currently under some pressure following a decline below $1,700, but I view weakness in the precious metal not as a sign to sell, but as an opportunity to buy.
The fact that gold is losing momentum at this time despite what I feel will be some tough years ahead for the European Union and eurozone along with the debt mess here is a surprise. But when the metal has increased as much as it has, there will always be those who believe that the price will retrench back to some medium-term support at around $1,600.
The price chart of cash gold appears to suggest a possible retest at $1,600. Since September, the trendline has been down. The metal has peaked on three successive moves, but each upward move was lower than the prior upward move: $1,925 (September); $1,800 (November); and $1,760 (December). Failure to hold at $1,600 could see the metal decline to below $1,500, as was the case in early July 2011. This is the current monetary risk.
But, as we move ahead, I continue to be bullish. As I recently said in a commentary, the metal may be set to move back towards $2,000 in 2012 if Europe falters and China stalls. Michael Purves, chief market strategist at BGC Partners, believes that gold stocks on price weakness, with a break below $1,600 representing a great opportunity to buy.
If you want to read more on why gold is a favorite, read Mining for Riches: Great Metals Stocks to Check Out.