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Real Time Insight

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We talk quite a bit about stocks, ETFs and bonds but gold has not been a topic in RTI (Real Time Insight) for a while.   Thought it might be a good time to strike up a conversation about the yellow precious metal and where it’s headed.

Everyone knows that gold prices are volatile and traditionally, gold has been a safe haven of sorts for traders who fear the stock market and are looking for hard, non-correlated assets.  It’s important to note that Gold doesn’t always move opposite the stock market and even when markets are tumbling, gold is not always there to save the day. 

In fact, the longer term correlation between the S&P 500 and Gold is actually more positive, with periods of major decoupling like what we have seen since January.

The value of gold has been skewed both ways s in the past several years and despite its recent selloff is still up over 100% from the 2007 lows (the S&P is up 146%).  Gold prices were fueled to the upside by the devaluation of currencies around the world combined with stockpiling of gold bullion by those same central banks.

We must not forget that gold is a commodity in limited supply and is treasured by many as a thing of beauty and status.  It has some industrial applications, but not nearly as much as Palladium, Platinum, Silver and others. 

There is also a substantial amount of people who believe we should go back to a gold standard, which in my opinion would be nice, but next to impossible give the sheer amounts of currency in circulation among the G7 countries alone.

Gold’s recent slide can also be at least partially attributed to India and a tax increase they imposed earlier in the year; that said, gold imports are likely to rise in India in 2013 according to a Wall Street Journal report.  India, along with China are the top two consumers of global gold.

Historically, early summer is NOT a good time for gold, with August-December being the “normal rally season.”

SPY (black) vs. GLD (orange)

Direction

I think gold has been the subject of profit taking, weak economics around the world, seasonal depression and global commodity devaluation.  Even with all the global QE, prices (for the most part) have been coming down or rising moderately.  While I believe that inflationary pressures will surface eventually, they remain at bay currently.

The stock market is near what I believe will be its peak for the year and gold has given back almost 19% YTD.  Given the negative seasonal impact, I think gold got a one two punch and perhaps a third with the increased potential for a Fed QE retraction sooner than later.

Taking all that into consideration, I think gold will rally into December and will regain strength as a hedging tool once traders come off their equity high.  China and India will still increase consumption as we move into the latter half of the year and despite taxes and weak economies will still buy tons of gold.

I see the yellow gold back around $1,500 an ounce, up from its current level of $1,389; a gain of about 8%

Where do you see it?

a)      $1,500+

b)      Current level $1,389 up to $1,500

c)       Current level $1,389 down to $1,200

d)      $1,200 or less

e)      Other (please describe)

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