Sudden spikes in gold prices can be deceiving as the precious metal is prone to sink to new lows, before the trend will finally enter into reversal.
After a lengthy decline, gold prices suddenly spiked and investors are wondering whether this is the moment to jump back on the bandwagon. Some like to believe that the precious metal has finally hit rock bottom and from this point onwards it will only go up. The number of bearish investors is still vastly superior, but the fact that for the first time in months a few bulls have emerged makes it worth discussing the matter. The gold contraction story is far from over and binary options traders should stay alert.
World Gold Council Data Hike Prices
There were so few good news about gold this year that when the World Gold Council released its latest numbers, the markets responded immediately. The fundamentals for gold haven't changed and this makes it even more awkward to see that the precious metal keep going downhill. Traders keep moving into equities and stock and out of gold and this is what moves the markets, not a vast conspiracy as some would like us to believe. What comes goes around comes around and the same mechanisms that drove the gold price down, will eventually lead to a reversal of this trend.
The World Gold Council highlighted the fact that central banks stepped up their gold buying policies and the jewelry sales are also on the rise. Confidence in paper currency is still relatively low and the FED's endless quantitative easing is not helpful in any way. The Federal Reserve suggested that the time to end money printing might come sooner than expected and these rumors are also responsible for the sudden revival of gold prices. Sadly, it is hard to believe that QE will end anytime soon and after the enthusiasm dwindles, gold prices will resume their fall.
Short and Long Term Investment Implications
Technical analysis suggests that right now ETFs shorting gold are going to prove profitable and the gold price hike is just an isolated event. The bottom of gold is yet to be reached and an intelligent short term play for binary options traders would be to but put options that expire soon. Perhaps the most dangerous bets are the ones made on medium term, as it is uncertain how much will the prices tumble and some investors could find themselves at the wrong end of trades.
Long term forecasts suggest the exact opposite, as the fundamentals haven't changed for gold and the precious metal remains an excellent investment for those who play the long game. The true question is how long it will take before the fundamentals will prevail and when will this drastic correction in gold prices end. Traders need to stay flexible and shift between betting against gold on the short run while doing the exact opposite on the long run.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.