Gold May Be Due for a Breather

We all understand the allure of gold (GLD) as an alternative to paper currencies, but the fundamentals may be slipping a little, according to an October 10th story in the Mining Journal:

In the Natixis Commodity Markets' Fourth Quarter Metals Review, Natixis said: “In contrast to the period before 2008, production is clearly on the rise, and the performance cost of new capacity stands far below current price levels, even when measured on an 'all-in' basis.”

With the odds of a countertrend rally in the U.S. dollar increasing, “weak dollar” assets such as gold may be setting themselves up for a correction. The four technical indicators shown below are fairly reliable in terms of identifying a weakening trend. With the Fed due to announce the second round of quantitative easing on November 3rd, gold may be able to push to new highs, especially if the gold ETF can hold above $130, but the risk-reward ratio is questionable in the short-term.

We have held gold during the rally off the August lows. Given the escalating short-term risks, we cut back on our holdings recently.

This article contains the current opinions of the author. The opinions are subject to change without notice. This article is for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.

Disclosure: Author is long GLD

Chris Ciovacco

Ciovacco Capital

Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com

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