Gold prices have been all over the chart and moving in a sideways consolidation channel since late September, caught between $1,800 on the top end and $1,550 on the bottom. After a recent move towards $1,800 in late February, the metal topped and is again struggling to hold ground around $1,650, with key support at $1,600 to $1,625. And, while a bullish “golden cross” continues to hold on the chart, with the 50-day moving average (MA) above the 200-day MA, the metal broke below both moving averages on Tuesday and Wednesday.
Chart courtesy of www.StockCharts.com
Failure to hold at the 200-day MA could see a subsequent move down towards $1,600, which I would view as a decent buying opportunity to buy or add to a position. A drop to $1,550 would represent an excellent buying opportunity for the metal.
The reality is that the price of gold is currently driven by two key variables: global risk; and world demand. I feel that both factors are supportive of higher prices.
I think there will be tough years ahead for the European Union and eurozone, along with the debt mess here. There are some who are calling for another potential recession in Europe.
In Asia, Chinese premier Wen Jiabao cut the country’s gross domestic product (GDP) target to an eight-year low of 7.5% for 2012. The eurozone mess and lower global demand are impacting “Big Red.”
In the Middle East, there are mounting issues in Syriaand speculation thatIranis close to having the knowledge to develop nuclear weapons.
The second major variable that could drive gold higher is the higher demand from China and India. China is expected to jump ahead of India as the top consumer of the yellow metal in 2012. China’s demand for gold is estimated to surge 20% this year, according to the World Gold Council. This demand has helped to drive up prices and will continue. Moreover, some think that China wants to reduce its buying of U.S. debt and instead accumulate physical gold. Should this happen, it would give a major push for prices.
Staying in the Asiatic region, I also expect gold to continue to be in high demand inIndia, a major consumer of the precious metal. Demand inIndia could be massive and expand at 10% to 15% this year, up from an estimated five to seven percent in 2011. India imported a record 969 tonnes of the yellow metal in 2011, according to the World Gold Council.
Given the current downward pressure, my advice is to buy gold stocks on price weakness, with a break below $1,600 representing a great opportunity to buy.
In other news, there is building excitement towards the next generation Apple Inc. (NASDAQ/AAPL) “iPad,” Which will offer 4G and increased gaming ability with higher speed. In my view, Apple remains the best of breed, especially with its iPad sales, which I discussed in The Thorn in the PC Market Leader’s Side.