Is gold ready to move up?

It looks like SPDR Gold Shares have ended their 10% correction from the end of February. A new rally may be on the way.

By Jim J. Jubak Mar 27, 2012 4:52PM
Stocks liked Fed chairman Ben Bernanke's speech Monday emphasizing the Federal Reserve's doubts about the strength of the recovery in the job market. But the gold market liked it even more. 

The SPDR Gold Shares (GLD) climbed to $164.40 Monday from $161.53 on Friday. That was a 1.8% gain for the gold bullion ETF.

Bernanke chose a glass-half-empty approach to recent job gains in his speech to the National Association of Business Economists. The rapid drop in the unemployment rate in the last six months to 8.3% from 9.1%, he said, may reflect a one-time bounce reversing the job cuts of 2008 and 2009. 

Post continues below.
"To the extent that this reversal has been completed," Bernanke said, "further significant improvements in the unemployment rate will probably require a more rapid expansion from consumers and businesses, a process that can be supported by continued accommodative policies."

In other words, the Fed isn't even vaguely thinking of rescinding its promise to keep interest rates at current extraordinarily low levels through the end of 2014. And the possibility of another round of quantitative easing remains on the table.

The stock market, accurately, heard the sounds of printing presses churning out dollar bills in Bernanke's remarks. Stocks rallied because increases in the money supply support faster economic growth (in the short-run anyway and who worries about the long-run on Wall Street right now?) and because lower interest rates make stocks look even better against bonds. (The S&P 500 stocks currently yield 1.86%. That’s more than the 1.02% yield on the 5-year Treasury note and not far behind the 2.18% yield on the 10-year Treasury.)

So too did the gold market, where the sound of printing presses argues for a falling dollar (good for gold) and an eventual increase in inflation (good for gold).

Right now it looks like the SPDR Gold Shares ended their 10% or so correction from their Feb. 28 intraday high at $174 to a bottom at $158 and have, with Monday's move, broken through resistance to start a new rally.

Potentially anyway. The 200-day moving average for SPDR Gold Shares is at $163.74 and the 50-day moving average is at $165.86. A move above those levels -- that stuck -- would add to my belief that gold is ready to move up from here for a while.

If you want to buy gold itself, SPDR Gold Shares is a good pick. If you want to buy shares of gold-mining companies, try Jubak's Picks Goldcorp (GG) or Yamana Gold (AUY). One other
interesting pick is Randgold Resources (GOLD), which has pulled back strongly on the coup in
Mali where the company conducts mining activity.

At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. The fund did own shares of Goldcorp and Yamana Gold as of the end of December. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here. 

Tags: Federal ReserveGGGLDgoldinvesting strategyJim Jubakstock marketstocks
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11Comments
Corn on the cob
Mar 27, 2012 5:55PM
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Precious metal investors must be dancing in the streets right about now. As long as Bernanke can come on to the podium and murmur a few sounds once in awhile, I think gold and silver will continue to climb, yep, that's about it folks. I think i'm gonna go back down to the water and skip a few more rocks across the lake.
Active RIA
Mar 28, 2012 2:43AM
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Solid analysis JJ.  We like the gold mining no-load mutual fund BGEIX.

 

StarMoneyStarMoneyStar  the nice thing is that neither King Midas or King Bernanke could/can print gold ....

sprues2
Mar 28, 2012 10:22AM
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Not nuclear physics, I bought gold in  April, 2008, as soon as it became apparent that we were going to elect a quasi socialist.
Obama and Bernanke cooperated beautifully, Bernanke printed it, Obama borrowed and spent it
Obama can't tax it until it's sold and it will stay in gold, until we have a real president again.

zack lowe
Mar 28, 2012 10:53AM
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gold universal currencies definitely.
joe lambright
Mar 27, 2012 10:21PM
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This is easier than the "how long does it take you to go 80 miles if yor going 80 miles per hour,  where did this girl go to school and how many more are out there are like her? Obviously they have made it into the high lelvels of our government.  If you spend 10 dollars and only have 6 dollars and print or borrow the other 4,  how long until disaster comes?  We need to find out  who taught this this 80 mph girl and fire them. If you havent seen the video go to youtube.com and type in the "  80 mph question  "

Paolo-Pablo
Mar 28, 2012 11:53AM
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Gold and silver will continue to be erratic.  They are being deliberately shorted AND are also tied into paper currencies.

 

Stock markets will also continue to be erratic for obvious reasons.

 

There is money to be made and lost on both sides of this fence.

 

However, nobody can devalue the precious metals to the same degree and devastation as they can with paper currencies. 

 

An ounce of gold and an ounce of silver can be driven down in price BUT their physical weights are forever stable!  In addition, you can forever print paper, but cannot falsify the metals.

jul180
Mar 28, 2012 1:12PM
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During WWII some Jews escaped death because they had a few gold coins to barter.  Good insurance to have and to hold onto.  Our country is changing dramatically every day.   

Polish Man
Mar 28, 2012 12:15PM
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Please do not talk about Gold. Between this guy and Kramer everything goes the oppisite way!
Retired for Now
Apr 3, 2012 4:34PM
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I hate these articles.  Is gold going up?  You asked the question.  Your answer seems to be down now then up next year.  By then no one will remember what you predicted, and it so easy to say it will go down then up, etc.  Somebody should track your BS and expose its inaccuracy.
Doug (Out in the cold)
Mar 27, 2012 6:54PM
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Another round of Fed quantitative easing?  More likely to have Congress finally pass some JOBS bills to revive the construction and manufacturing sectors .. as the source of stimulation.  Bankers don't need any more money .. it is Main Street that is suffering from lack of investment in jobs and productivity compensation.

 

Gold is not the medium of international exchange.  It is a commodity that is dependant on a growing consumer demand, hence it will track the global economic recovery.

KOO
Mar 28, 2012 12:07AM
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Took Jubak less than 24 hours to create another Doom and Gloom piece. New Record !!

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