Gold prices hit their death cross last week, technically a bearish indicator, but what does that really mean for investing in gold stocks?
According to Goldman Sachs Group Inc. (NYSE: GS) it means gold is headed down for the remainder of the year. In a Feb. 25 note to clients, Goldman lowered its three-month gold-price forecast to $1,615 an ounce from $1,825, its six-month forecast to $1,600 an ounce from $1,805 and its 12-month forecast to $1,550 an ounce from $1,800.
But, once again, Goldman is wrong.
“The fact is, despite this pullback, gold prices are consolidating at a relatively high level, which is rather bullish. As well, gold’s price is forming a technical pattern known as a “symmetrical triangle,’ which also provides a bullish setup,” said Money Morning Global Resources Specialist Peter Krauth when the sell-off began earlier this month.
“The last time we had this was in 2008 to 2009,” explained Krauth. “After that consolidation, gold began a multi-year climb that nearly doubled its price. I think we are in the first innings of another such cycle that could take the price much higher, and almost certainly to new all-time highs.”
As for investing in gold stocks, Krauth said now’s a good time to stock up on the yellow metal.
“I believe the best strategy, as gold remains in a secular bull, is to accumulate on dips,” said Krauth. “So this very recent weakness has created a great opportunity for true contrarian investors to do just that and add to their gold positions.”
Why Gold Prices Are Ready to Move
Krauth thinks gold prices could move up more than 30% in 2013 from current prices, and has a price target of $2,200 an ounce.
A main reason for this target is the explosion of stimulative monetary policies, which has led to rapid growth in fiat money and helped increase the demand for gold.
Not only are consumers and small investors looking at gold as a hedge against inflation and a way to store value, but central banks are also buying gold at a feverish pace.
In 2012 the world’s central banks added the most gold to their reserves since 1964. Net official gold purchases totaled 536 metric tons, a gain of 17.4% from the previous year according to a report from Thomson Reuters GFMS. Central banks are forecast by GFMS to purchase 280 metric tons in the first half of 2013 alone.
And the intensifying currency wars are debasing global currencies, yet another bullish sign for gold prices.