How Gold Has Caught Me by Surprise

How Tensions in Crimea Are Changing My Gold Investment StrategyI must admit that I’ve been somewhat caught off guard by the strong rally in gold so far in 2014. The yellow ore has been on a nice upward push towards the $1,400-an-ounce level; it could even take out this level and head towards some tough resistance around $1,425–$1,450.

While the rally appears to be holding, I still only view the yellow precious metal as a trade, and not a buy-and-hold for investors at this time. I would be selling into further weakness if you are holding gold or any related stocks.

What I think is driving the upward move in gold prices is the associated cautious moves in the stock market and the geopolitical tensions triggered by the situation in Crimea. If stocks can regain their enthusiasm, I would expect a retrenchment in the precious metal as money is shifted out. (Read why I feel stocks are heading higher in “Why I Believe the S&P 500 Could Easily Reach 2,000 in the Upcoming Months.”)

My past contention was that gold was a trading opportunity. Back in late 2013, I saw a bearish “head and shoulders” formation on the chart, after which prices fell towards support at $1,200. The oversold nature was supportive of a bounce on the charts, but the gains so far this year have been much more than I would have expected, largely due to the uneasiness in equities so far.

The precious metal could see more buying should the tense situation in Ukraine and Crimea escalate following the vote on Sunday that could lead to Crimea separating and joining Russia. While there has yet to be an armed conflict, this standoff will be a key factor for the direction of gold. Even if a conflict doesn’t materialize, the likely increasing economic sanctions against Russia will cause some disruption to the Russian economy and Europe, and could possibly affect the global economy. Should this chain of events emerge, we could see gold take off.

Inflation, a historically supportive variable for gold, has been largely benign across the world economies with some exceptions. Consumer inflation in the United States remains extremely low. In many major regions around the world, inflation will continue to be a non-factor at this time.

gold - Spot Price (EOD) CME ChartChart courtesy of

The strategy right now is to go with the trend and that’s calling for higher prices, based on my technical analysis. In the near-term, the yellow precious metal looks to be pausing at the $1,350 level on neutral relative strength, but unless it breaks below its 200-day moving average at around $1,303, I would look at weakness as a trading opportunity to buy and then look at selling into strength. An uprising in Crimea could drive gold to test $1,400 and $1,425. You could trade via iShares Gold Trust (NYSEArca/IAU) or SPDR Gold Shares (NYSEArca/GLD), or for added leverage, take a look at the Direxion Daily Gold Miners Bull 3X Shares (NYSEArca/NUGT).