Following the remarks of Federal Reserve Chairman Ben Bernanke before the Congressional Finance Committee last Wednesday, we saw a significant sell-off in the gold market that has provided one of the best opportunities for buying gold that we have seen in months. At one point, the price of gold per ounce was off $100, but the markets indicate that the sell-off has concluded and the firm ground for a rally is already established.
Though Bernanke’s platform was pretty much unchanged since the January 25th Federal Open Markets Committee announcement, the lack of any meaningful indication that he would begin a third round of Quantitative Easing provided the catalyst for the gold sell-off. Fiscal stimulus has been the backbone of the Fed’s response to the trouble in the markets and is essentially an inflationary program. There are indications from the Chicago Mercantile Exchange that one single massive trade-off of 31 tonnes was the precipitous trade that led to a more general sell-off.
The fundamentals of the market, however, remain intact. Institutional buying and safe- haven buying remain at all-time highs. Central banks have been buying gold at multi- decade highs, according to reports published by the World Gold Council, and the WGC projects continued buying highs in the biggest consumers of gold in the world, India and China.
The market sell-off is fairly illogical in the sense of technical indicators being present for buying gold, not selling. While investment firms and markets must account for the policy of the Federal Reserve, a reaction to a statement Fed Chairman Ben Bernanke didn’t make is not necessarily good trading, especially when considering a massive trade on the Chicago Mercantile Exchange, central banks continued investment in gold, and strong demand in overseas markets.
As such, the dip that has occurred in the price of gold should be regarded as a significant buying point for investors looking for good entry into the market. The fundamentals are still intact, all projections by major banks and investment firms place gold as a top performer, and buying continues unabated in the biggest markets for gold in the world. The ground for a rally has all the technical support needed for significantly higher prices in gold. Buying gold now will quickly become a very strong and profitable investment as the gold market rebounds and breaks new ground.
Senior Staff Writer – Certified Gold Exchange