Tuesday, March 16, 2010

Gold Market Update

The accompanying 8-year chart of gold's price looks steeper than it should because it is not log-adjusted but is arithmetic. The same price move from a $1000/ounce price gets the same vertical space in this layout as from a $500 base. With that said, let's look at the trends.

The continuous green line represents the 200 day moving average. In the other sharp ascents, there were frequent basing periods or testing periods in which the 200 day moving average was reached or breached to the downside. (Of course, late 2008 was extraordinary for almost all markets.)

Gold has recently hit all-time highs measured in euros and pounds sterling. Given the enhanced government leverage employed the past 18 months, I expect the same here; but when?

My guess is that gold has lagged the stock averages a bit and is playing catchup and thus has more short-term upside. However, indicators of small investor/speculator enthusiasm such as the premium that GTU has over NAV indicate some complacency (though not froth). A trading range with an upside bias following a potential continued upmove makes sense to me.

Selling puts or owning GLD and selling covered calls both are strategies that may appeal to income-oriented investors.

Copyright (C) Long Lake LLC 2010

No comments:

Post a Comment