Thursday, January 29, 2009

The future for Gold

FTAlphaville has sourced an article in the FT about a hedge funds denminating their investments in gold in place of dollars.

Certainly there is no shortage of interest in the commodity; will a deflationary recession kill gold, or inflationary money-printing have gold bugs counting their coin?

Using the SPDR Gold Shares (GLD) as the example, the good news for gold bugs is the rally from October lows has cleared one level of declining resistance from July, but has yet to challenge a second dating back to March of last year. There is, however, room to maneuver up to the latter's resistance currently lurking around $92 which so happens to coincide with the pivot high of September 29th 2008.

There is probably the momentum to get it there, but beyond that it might struggle without first making it back to trend support first.

The problem for gold bugs is that since August of last year gold has far outperformed its counterpart, silver, suggesting a potential arbitrage play.

On December 11th 2008, iShare Silver Trust (SLV) broke through its 50-day MA and managed a successful backtest on January 14th. On January 23rd it broke through $11.48 resistance on solid volume.

Perhaps the Bugs have the wrong Beast?

I have created a YourCall for SLV for a push to the lower reaches of last September's consolidation at $12.89. I'll stick a stop below $11.48 support. Let's see how it fares. Follow this call on our stock charting service; use-of-service requires free registration.

Dr. Declan Fallon, Senior Market Technician, the free stock alerts, market alerts, and stock charts website