By Kevin Grewal
Over the past week, gold prices have been teetering in positive and negative territory and somewhat uncertain; however, there is much confidence that the price of bullion will increase this year.
One factor that is likely to support the price of the precious metal is the fact that central banks around the world have been hoarding onto the commodity and reluctant to sell it. In fact, some bullion analysts expect the Central bank of China, Russia and India to continue to gobble up gold as they move away from sovereign bonds and seek safer investments.
A second factor likely to support the price of the yellow metal is the expected increase in global demand for base metals. There is an indirect correlation between the two types of metals, and in general as the prices of base metals increase so do those of gold. Thirdly, investor appetite for safe-haven tools is expected to continue to rise as sovereign debt issues in Europe, in particularly Greece, continue to make headlines and remains of concern.
Lastly, the Federal Reserve’s decision to keep interest rates at or near zero is likely to result in a loss of purchasing power, which will likely result in the U.S. dollar to decline, making gold appealing to foreign investors and painting a macroeconomic backdrop which will likely support the price of the shiny metal.
A combination of these forces and a few other have lead many gold analysts to suggest that gold will hold a $1,000 floor and see upsides. With this in mind, some possible plays include:
· SPDR Gold Shares (NYSEARCA:GLD), which is the most common way to play gold through equities and gives exposure to actual physically backed bullion. GLD closed at $108.28 on Friday.
· PowerShares DB Gold (NYSEARCA:DGL), which gives exposure to gold through futures contracts. DGL closed at $ on Friday. DGL closed at $39.50 on Friday.
· Market Vectors Gold Miners ETF (NYSEARCA:GDX), which includes mining companies Barrick Gold (ABX), Newmont Mining (NYSE:NEM) and AngloGold Ashanti (NYSE:AU), all of whom are bullish on the outlook of gold in the near future and will benefit from an uptick in the demand of the metal. GDX closed at $45.31 on Friday.
Although opportunity seems to exist in gold, the metal could potentially face a few headwinds through inflationary concerns in China and declines in demand for its use in jewelry. To help protect against these risks, as well as the inherent risks involved in investing in a commodity driven equity, the implementation of an exit strategy which triggers price points at which an upward trend could potentially be coming to an end is of importance.
According to the latest data at www.SmartStops.net, an upward trend in the mentioned equities could come to an end at the following price points: GLD at $106.42; DGL at $38.88; GDX at $43.60. These price points change on a daily basis as market conditions fluctuate and updated data can be found at www.SmartStops.net.