Investors Get Ready: Gold Set on $1,500

By George Leong, B.Comm.

Gold is sizzling hot! The chart is pointing to potentially more gains. The June Gold contract hit a record high of $1,462.30 on April 6, in what appears to be a breakout on the chart at $1,430, followed by key resistance at $1,440. The chart shows a bullish inverse head-and-shoulders formation in March. Prior to this, there was a bullish “V” formation in January and early February.

All signs point to $1,500 as a short- to mid-term target for gold. The trading volume in the June gold been surging during the breakout and this is bullish.

The investment climate is ideal for gold. The conflict in Libya continues. Japan suffered a horrific tsunami and related leak in one of its nuclear generation plants. The damage could impact the country’s economic renewal. Europe continues to show slow growth and there are breaks within several European Union countries, including Portugal, Greece, and Ireland. Portugal may have to seek emergency capital to avoid a collapse. Oil is trading at over $108.00 per barrel and this will impact global economic renewal.

The reality is that investing in gold is a safe-haven play when the market risk rises.

Gold has rallied in each of the last 10 years and shows a beautiful bullish price chart. My gold advice would be to accumulate gold on weakness.

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 and Japan along with the higher expected demand flowing out of China and India, as the countries’ per-capita incomes continue to edge higher.

I would not be surprised to see gold move towards $1,500 an ounce by year-end or sooner.

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 is strong, 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 $1,423 above the 200-day MA of $1,329. The key will be for gold to hold at $1,440 and edge higher towards $1,500.

Silver has also followed gold higher, with the May silver futures contract above $39.00 an ounce. Silver is a play on the economic recovery, as it’s found in electronics.

I also like copper as a play on the recovering global economies, especially in industrial applications and housing.

My advice to play the commodities is to buy the gold stocks silver stocks, and oil stocks on weakness.

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