Gold – Where Next?

by Jeffrey Nichols, Gold Seek A reassessment of economic prospects – and revised financial-market expectations of Fed policy – sometime in the next few months could support a spring-summer recovery in the price of gold, lifting the yellow metal up and out of its recent trading range. Until that happens, gold prices will likely remain “range-bound” in the short term, perhaps through midyear or longer, trading mostly between a floor price of $1,175 and a ceiling around $1,225. As these boundaries are approached or briefly broached, technical traders will continue to step in as buyers or sellers, respectively, keeping the yellow metal’s price relatively stable within this range. Despite some dissention among the voting members of the Fed’s FOMC policy-setting committee, the Fed will likely honor its pledge not to begin easing up on interest rates until the economy shows clear signs of a continuing and sustainable expansion. As a result, we believe monetary policy will remain looser for longer than most gold pundits and macroeconomists now expect. With world equity prices in “bubble” territory and vulnerable to devaluation, there’s a good chance both Wall Street and world stock markets will tumble down hill, especially with the first signs that the Fed is beginning to tighten-up its current zero interest-rate policy – and this could be the spark that triggers a resumption of the long-term bull market in gold. Alternatively, it could very well be some exogenous “outside-the-market” event that triggers a resumption of gold’s long-term bull market. Leading candidates are: (1) rising tensions in the Persian Gulf drawing the U.S. Navy into armed conflict with Iran; (2) resumed Russian-Ukraine fighting in Eastern Europe as President Putin resumes his efforts to redraw boarders between the two countries; (3) an outright default by Greece and that country’s exit from the Eurozone throwing world currency and financial markets into a tizzy; OR (4) some unforeseen “black-swan” event that raises safe-haven demand for gold.

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