The potential of a civil war in Libya has given gold bugs another reason to buy. After declining to just above $1,300 an ounce, gold has been hot, recently breaking back above $1,400. Investing in gold continues to be a safe haven play when risk rises.
Gold has rallied in each of the last 10 years, and it shows a beautiful bullish price chart. My gold advice would be to accumulate the commodity on weakness. The situation in Libya may be worse and there are also tensions in Iran and other Middle East countries. This means added global risk. Oil surged to over $100.00 per barrel on the threat of a halt in oil from Libya.
In my view, the key determinant of how gold will fare will depend on the direction of stocks, along with the geopolitical tensions.
A strong and bullish stock market tends to drive some selling in gold, as capital flows into equities from gold. This could materialize, but my feeling is that gold will receive support from the global uncertainties in the Middle East, along with higher expected demand flowing out of China and India, as the countries’ per-capita incomes continue to edge higher.
If the Middle East situation worsens, it would drive up oil prices, which would impact economic growth at a time when the economies continue to be at risk. I would not be surprised to see gold move towards $1,500 an ounce if a war in Libya breaks out.
Also, don’t forget about the mounting debt and deficit in the United States. The country has over $14.0 trillion in debt and is paying billions in interest daily. Many states are struggling to make ends meet and are looking at severe cuts in the state budgets.
On the chart, the Relative Strength for the April gold has strengthened, so there could be additional upside moves in the near term. There remains a bullish golden cross on the chart, with the 50-day moving average (MA) of $1,374 above the 200-day MA of $1,303. Look for resistance at the four-week high of $1,418.8 and the 13-week high of $1,434.1.
Silver has been following gold higher, with the March silver futures contract above $33.00 an ounce. Silver is a play on the economic recovery, as the metal is found in electronics.
I also like copper as a play on the recovering global economies, especially in industrial applications and housing.
Oil is another commodity with above-average price potential. Continued global economic renewal could drive prices towards $100.00 this year.
Market pundit Dennis Gartman of The Gartman Letter believes that oil could trade down to $75.00 before it trades at $100.00.
The near-term technical picture for the April oil is bullish on strong Relative Strength.
Oil is above its 50-day MA of $91.68 and well above its 200-day MA of $84.66.
My advice on playing the commodities is to buy the gold/silver stocks and oil stocks on weakness, especially if the situation in Libya and the Middle East worsens.