Commodities were rock stars in 2010.
Gold has rallied in each of the last 10 years, and it shows a beautiful bullish price chart. But in the first few sessions of the New Year, gold is pausing, as the February Gold fell over $30.00 to back below $1,400 on January 4. I do not feel that it is the beginning of a downward slide, but at the same time I see key resistance around $1,430-$1,440 last encountered in December 2009. Failure to break higher could see gold prices scramble downwards towards $1,300.
A large determinant of how gold will fare is the direction of equities. A strong and bullish stock market tends to pressure gold, as capital flows into equities from gold. This could materialize, but my feeling is that gold will receive support from global uncertainties and increasing demand from China and India, as the countries’ per-capita incomes continue to edge higher.
If the global economies continue to show some signs of softness and the debt crisis in Europe worsens, we could see gold prices move towards $1,500 an ounce by year-end. Also don’t forget about the mounting debt and deficit in the United States.
Of course, this is the best case scenario for $1,500 gold, but it will not be easy.
On the chart, the Relative Strength for gold has fallen below neutral, so there could be additional weakness in the near term. Yet there remains a bullish golden cross on the chart, with the 50-day moving average (MA) of $1,380 above the 200-day MA of $1,265. Look for resistance at $1,400, followed by the four-week high of $1,424.
Silver has also been following gold higher, with the continuous silver futures contract at around $30.00 an ounce. The March silver is just below $30.00. Silver is a play on the economic recovery, as silver is found in electronics.
I also like copper as a play on the recovering global economies, especially in industrial applications and housing.
Another potentially strong commodity is oil. Continued global economic renewal could drive prices towards $100.00 this year.
The near-term technical picture for the February oil is moderately bullish, but on weakening Relative Strength. Oil had broken above $90.00, but has since fallen back below. I do not sense a downward return to its previous $70.00-$80.00 channel, unless the global economies slow.
Oil is trading above both its 50-day MA of $87.06 and 200-day MA of $83.22 and is showing a bullish golden cross on the chart. A move towards $100.00 is possible.
My advice to play the commodities is to buy the gold/silver and oil stocks on weakness.