Gold Decline Offers Opportunity for Bulls to Scale In
Gold futures are down sharply this morning, with the COMEX April and June contracts both sliding below $940 an ounce. I think this correction offers an opportunity to establish bullish positions on a rebound, by scaling in using mini contracts.
The latest economic data remains rather uninspiring overall. In February, personal spending rose 0.1 percent, down from a 0.4 percent increase the prior month, the Commerce Department reported. Incomes increased 0.5 percent, following January’s rise of 0.3 percent.
The PCE price index, one the Federal Reserve’s favorite economic indicators, rose 2 percent in February from a year earlier. The inflation reading excludes food and fuel costs.
Inflation has been an issue the Fed has largely cast aside in favor of stimulating our flagging economy through a string of interest rate cuts. It’s is a problem overseas as well. Inflation in the European Union stood at 3.3 percent in February, the highest rate since 1999. However, the housing problem is growing in Europe and their currency and economy may face pressure as a result. The European Central Bank might need to lower interest rates, even though they’ve resisted so far. If that does happen, the euro should sell off and the dollar rally. But for the time being, the ECB is standing pat. Its key interest rate has been unchanged at 4 percent since 2007. European Central Bank governing council member Axel Weber recently said current inflation rates are a concern and average inflation will be above 2 percent this year. “Especially now, a price stability-oriented monetary policy serves as an important anchor during turbulent times,” he said.
Keep your eye on inflation and the housing market globally. The euro hasn’t broken out dramatically to the upside, but a trade above the high at $157.97 should continue the rally in gold and crude oil. It looks like the euro could explode, but is playing a range.
Gold, which has been trading inversely to the dollar, has fallen quite dramatically. I’d use the pullback as an opportunity to establish bullish positions. I currently recommend buying three mini-gold contracts at $930, $905 and $880, for an average price of $905. Use a $100 stop, at $880. As the market falls, I want to cost-average in to establish a bullish position. I don’t think the bull market in gold is quite over yet.
Feel free to call me for more specific strategies in this or other markets to suit your individual risk tolerance, and ask about a special half-off offer for new clients.
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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