Get in on Gold Pullback
After two declining sessions, gold futures have pulled back further on a statement from the U.S. Treasury approving International Monetary Fund gold sales. The April NYMEX gold contract is trading at about $937.30 an ounce, but I think this correction is a buying opportunity for gold bugs and I recommend buying on a dip down to $900 if this selloff gains momentum.
The U.S. is the IMF’s largest shareholder, and on Monday, the Treasury said it supported an IMF plan to sell some $98 billion in gold reserves to help make up a revenue shortfall. The Bush administration was reported to be in support of as much as 12.9 million ounces to set up a fund to cover anticipated losses at the IMF, according to David McCormick, the Treasury’s undersecretary for international affairs.
While the market is selling off on this news, I’ve been bullish gold for some time, and remain so longer-term as long as our economy remains on shaky ground, the dollar remains weak, and the prospect of more rate cuts from the Federal Reserve loom.
I recommend buying gold futures at $900, if the market gives us that opportunity, and put your stop at $850. The chart appears to be setting up for a bullish pennant with two large days up, and then cycling back for a few days after. The European Central Bank’s governing Council meets March 6 in Frankfort, so we may be seeing some short-covering before that meeting. The ECB left its key interest rate at 4 percent this month, and recent statements from policymakers indicate a tough stance on inflation. However, many analysts feel the ECB will eventually have to follow the U.S. and cut rates to ward off credit and economic woes that are spreading to Europe.
The U.S. dollar has fallen to a three-week low against the euro after reports showing a sharp slide in U.S. home prices and consumer confidence, which sank to a five-year low. As long as the dollar remains weak, gold should rebound.
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Richard Ilczyszyn is a Senior Market Strategist with Lind Plus. He can be reached at 800-605-0095 or via email at rilczyszyn@lind-waldock.com.
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