Gold Update: Up-trend Remains Firmly in Place

Includes: GLD, IAU, SGOL
by: Daniel Zurbrügg
“Yet another high in Q2.” That’s what we wrote in our July Gold update and we could have used the same headline for the Q3 update as gold hit new highs in Q3. Despite a small consolidation in the past two weeks, the long-term upward trend remains firmly in place and the price seems very well supported at current levels.
The fundamental investment case hasn’t changed, there are some very powerful factors driving the price and despite the fact that we see more and more trend followers entering the market, we see more upward potential. We feel that the uptrend in coming weeks and months will be somewhat slower but that investors should keep gold in order to protect the purchasing power medium- and long-term. We expect the global investment sentiment to be mildly positive for another couple of weeks and maybe well into early 2011 and therefore more investments should be made in risky assets such as stocks.
The increased bullishness is not based on macro economical factors but primarily improved sentiment from strong corporate profitability and an expected shift in political powers in the mid-term elections. The increased willingness to invest in riskier assets might temporarily keep the price of gold at current levels and because of a possible small rebound in the U.S. Dollar even a slight price correction seems possible.
Investors looking to get exposure to gold might want to wait a bit because the chances of getting an entry opportunity at lower prices are quite good. This does not mean that investors with existing gold investment should sell any of their holdings, but, they should keep a realistic expectation with regards to the short-term price potential. We get more and more questions regarding silver and it seems that many regard silver as the better bet but we do not share this view. Given the fact that silver has a more cyclical component, we still prefer gold as the investment of choice in the area of precious metals.
Once again, we want to stress the importance of buying “real” gold, actual metal and not just some form of investment certificate or derivate instrument.
Disclosure: No positions