Could gold repeat another double digit rise in 2012?

Like a prizefighter who has taken a few upper cut blows, Gold might be a bit woozy, but the metal’s longer-term uptrend is hardly on the ropes. As in many financial sectors, gold’s price direction has been guided by headlines, particularly out of Europe on the sovereign debt situation, and the volatility caused by swiftly changing news has made many markets a bit punch-drunk.

The December price break for gold came as several events aligned. First, the market was never able to retest its all-time nominal high in August of $1,923.70 an ounce. Second, gold was one of the few star performers this year and when equity and other markets soured, money managers needed to raise cash to meet margin calls and shore up positions elsewhere. Third, with investors spooked by the continued inability for eurozone leaders to convincingly shore up their union, these investors sought safety in the most liquid vehicle available – cash – again pulling profits from gold.

Gold might be down about 16% from the August highs, but it’s still up roughly 14% from the 2010 settlement of $1,421.40, basis the nearby futures, which still makes it one of the best performers this year.

The yellow metal may be in a consolidation mode for the time being, resting and building a base to rally again, just like that prizefighter whose corner man keeps him in shape to go the distance.

Market watchers said the structural strength for gold remains intact, with most Western nations’ global interest rate policies falling or near zero, which makes the opportunity cost of holding gold negligible. The sovereign debt crisis in Europe still makes people nervous about holding fiat currencies. With the amount of liquidity floating around from quantitative easing programs from central banks like the Federal Reserve, fears that when the global economy starts to show decent growth again it will be difficult to rein in that stimulus.

Mark Leibovit, editor the VRTrader newsletter, said he remains overall bullish, but concedes the washout gold experienced in early December has done damage to technical charts.

“We might hit bottom in a month or so. How far it might go depends on how the technicals unfold. Short-term it’s held the September lows of $1,531. But we have to see it perform in both time and price to confirm it. What might it take do so? We’d need to see the equity market improve, Europe improve, and maybe a QE3,” he said, referring to a possible third quantitative easing by the Federal Reserve.

Leibovit said it’s possible that gold prices could have further room to fall, especially if a scenario unfolds like what happened following the bankruptcy of Lehman Brothers in September 2008. Price were already in a downdraft prior to the Lehman news, but a month later gold fell as far as $681, basis a front-month continuation futures chart.

This could happen if gold prices take out the $1,531 level, he said. In 2008 there was a 34% correction for gold. Based on that calculation, prices could drop to $1,270, Leibovit said.

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Posted by admin on Jan 4 2012. Filed under Gold predictions. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry