The excellent performance of gold in the first quarter of the year made millions of investors all around the world regain their trust in the yellow metal. In addition, the pattern of the gold chart shows clear signs of a healthy and sensible market, a market influenced by improving factors in the global economy, but at the same time respecting fundamentals and technical analysis.
But the most important lesson we have learned this year is that when the gold market is undeterred by manipulation or lack of popular appreciation and understanding, this precious metal is the ideal long term investment.
Gold chart recording steep rise in gold prices
There are three reasons that pushed gold prices almost $300 per ounce over their December 2013 low. To begin with, it was obvious that gold prices had dropped too low-too fast despite increasing demand, while production of new gold was plummeting because of high mining costs. There were analysts who claimed that gold was no longer a secure investment. As it happened, they were dead wrong.
US state officials have mobilized all possible means to rescue their economy from a debt default and reinstate the dollar as the only reliable reserve currency in the world; so far they have mixed results, but that does not mean that they won’t keep trying. For the majority of analysts, this is a lost case, and that also seems to make common sense.
The Ukraine crisis was by no means a trivial matter as there was fear of a military conflict in the heart of Europe and projections on the Georgia-Russia situation of 2008 were unavoidable. In fact, gold prices followed a similar pattern that summer and, although that was a much different crisis, it was not an entirely different gold market.
All things considered, a correction was long due, and since the ascent was non-stop, there were really no evident support levels to speak of.
Gold chart showing correction in progress
Signs that a correction was eminent showed when gold prices formed a double peak at $ 1,350 an ounce. Gaining momentum from the increasing tension in Crimea, prices peaked at $ 1,380.99 per ounce and dropped steeply after the referendum. Hopes that the $ 1,300 per ounce threshold would act as a psychological support level were defeated so far this week, as Monday’s trading session indicated that the correction was obviously still in progress.
In theory, prices can drop around 1/3 of the initial rise without damaging the market’s positive trend as it is considered within reasonable bounds. At the moment prices are approaching this critical point, and close monitoring of the market is needed, as buying opportunities appear at these levels.
As there is no bad news whatsoever concerning gold, odds are that the correction will be completed around current prices, and making gradual purchases keeping both eyes on the market is a wise thing to do.
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