Gold has been one of the most hated commodities in the world since it peaked in September 2011 at $1923.70 an ounce. At that time, the precious metal was upgraded by J.P. Morgan Chase to $2500 an ounce. As many of you already know, when a major firm upgrades a stock or commodity at an extreme high, it is usually a top in that market. Today, the price of gold is trading around $1222.00 an ounce. Last week, gold traded as low as $1181.40 an ounce which was a fresh new two year low.
Many so called professional traders and investors now believe gold is going to decline further because the economy is improving and the Federal Reserve is going to start to taper its $85 billion a month QE-3 program.
Here are three reasons why gold might be bottoming.
- The sentiment for gold is as bearish as it has been for years. If you watch CNBC you hear almost every guest talk about how bearish they are for the precious metal. They will list all of the reasons why gold should go lower. Even the famous hedge fund manager John Paulson seems to have thrown in the towel on gold after taking big losses over the past two years. When this happens it is often the sign of a bottom. When the crowd and a stock market whale leans so strongly in one direction I want to start looking the other way.
- Gold is real money. Over the past five thousand years the world has viewed gold as money, however since President Nixon took the United States off of the gold standard in the 1970's it has been viewed as a useless relic. Why then do central banks around the world own gold? Remember, gold cannot be printed. Gold is not magnetic, and it is also the greatest conductor of electricity. So believe me, it is not a useless relic, it has many uses. If gold was a useless relic why do you think President Franklin Roosevelt confiscated it from the U.S. citizens in the 1930's? Central bankers around the world continue to print paper money (fiat) at an alarming rate. This is happening in the United States, China, Japan, England, Europe, and of course Zimbabwe.
- The current pattern on the charts is suggesting a potential bottoming pattern is forming in gold. The commercial money is only slightly bearish at this time. Last year, the commercial money was heavily bearish on gold. Remember, the commercial money is always early to the party and could be accumulating at this time.
Full disclosure: I own gold and silver bullion.