Volatility in the Gold

This year’s gold investor has seen some of the most volatile precious metal markets in decades. Beginning the year just under the $1400 mark, gold prices continued moving in a steady uptrend to about the $1550 level in July. Then gold prices shot up in a parabolic manner in August until the price topped $1900. Following the August run-up in prices investors watched gold fall roughly 10% in a week to around the $1700 level. Just when the bears started to come into the market, gold moved back up to around the $1850 level (which proved to be a double top for the metal). In September the gold market plummeted to test the 200 day moving average of around $1550. Once the metal hit its 200 day moving average, strong buying quickly propelled it back up to around the $1600 level. During October and November gold regained its upward momentum and slowly traded to about the $1750 area. This trend continued until early in the month when the metal sold off drastically bringing it down to $1550 per ounce. Currently the metal is trading at $1570 per ounce and has re-attracted many bears in the market. Bears argue that unlike when gold held its 200 day moving average during the September sell off, the current sell off forced gold to break below its 200 day moving average. This is something that gold has not done since 2008 when all global markets experienced massive deflation.

Bulls in the gold market have been baffled by the recent sell off in the yellow metal. They argue that given the European debt crisis, in addition to the U.S. debt problems, the fundamentals for gold are stronger than ever. Its a mystery to the bulls why gold has not eclipsed the $2000 mark. Despite such favorable opinions about the lustrous yellow metal, most gold traders are still scratching their heads wondering why the gold has not performed like the ultimate safe-haven that it is. Bears see this as a red flag in the market signaling that something is wrong which could lead to a deeper correction in price. Bulls, on the other hand, are bold to argue that this may be the best buying opportunity in the past year to pick up the metal at a discount. They argue that gold has been in a steady uptrend for over 10 years now, and even a correction to near the $1300 level would not break the overall trend. It is impossible to know what camp (bulls or bears) is right in their future assessment of the gold market; however, one thing remains clear—we have most likely reached a crossroads in the gold market.