If you have been watching the fluctuations in gold prices the last few days and weeks, it may have discouraged you. After the best first quarter runup in the yellow metal in over thirty years, it has begun to retrace a significant part of these gains. This can easily lead you to the conclusion that you should sell now while you still have these short term profits. It is easy to forget that the gold you acquire in your retirement account is supposed to be a long term holding, especially when gold undergoes a correction. The most important thing regarding your long term gold holdings is to not allow these volatile ups and downs to cause you to engage in panic gold selling. The fundamentals of gold are still solid.
Canadian GDP Takes Significant Hit From Wildfires and Resulting Oil Production Slowdown
Instability and troubling geopolitical events in the world are among the reasons that you put gold in your retirement accounts in the first place. These have not changed despite gold prices pulling back. The Bank of Canada just had its monetary policy meeting and brought up some of the reasons that it is not raising interest rates now. The devastating wildfires running through Northern Alberta have led to lasting economic weakness in the country. Because of the cessation of oil production in this key energy producing region of Alberta, Canada, an incredible one and one quarter percentage points have been cut from the second quarter real GDP growth. There has been much destruction from the fire that will take months or more to address. These tragic events not only support oil prices, but also underpin gold as well.
Gold Long Term Weakness Likely Limited to $1,200 Per Ounce
Gold has shown weakness lately because of a few factors. The U.S. Federal Reserve officials have been making the rounds talking up the likelihood of interest rate hikes in the coming months and into next year. This has driven the yields of 10 year Treasuries up and promoted a stronger U.S. dollar as well. For the moment, several of the hot spots to watch in Europe have cooled with polls demonstrating that Britain is less likely to leave the European Union and Greece receiving approval for another batch of financial aid to its crumbling economy.
Gold is nearing a significant support point in the hundred day moving average at $1,213 per ounce. Below this lies the psychologically important $1,200 price point that has been seen as a chance to buy the yellow metal on sale. Commerzbank recently suggested that gold will survive tests of $1,200 per ounce on discount buying opportunities. They do expect it will test the level on at least one occasion, but not to fall convincingly or permanently below this point with a number of parties looking for an opportunity to buy in at a better price. Other analysts have pointed out that gold remains in an uptrend even below $1,200 per ounce. Saxo Bank Head of Commodity Strategy Ole Hansen recently pointed out that gold is still in its uptrend all the way down to $1,175 per ounce. This $1,175 level is an important 50% Fibonacci retracement point in the price range from a $1,046 low to the recent $1,303 high.
Chinese Investors Buying Gold at On Sale Prices
Buying data from MKS in Switzerland shows that the Chinese investors are already beginning to step in and take advantage of lower gold prices. Their Senior Precious Metals Trader Alex Thorndike has noted that the Chinese are gladly making the most of lower prices. In mainland China, they are even paying as much as $2 to $3 per ounce over Hong Kong spot prices to be able to pick up gold ounces at these reduced global prices.
Gold Demand Flowing from East to West For A Change
Commerzbank has also noted that gold flows have temporarily shifted out of their trend of mostly going to Eastern countries. Switzerland customs data shows that the country’s gold exports rose to 147.8 tons in April. This represents its highest levels in three months. For now, just under a third of the Swiss gold export total moved out to typical consuming customers India, China, and Hong Kong. Instead about half of all gold exports, representing a net of 75 tons, went to the United Kingdom. Analysts have pointed out that this is not likely to last. The lower prices should soon be seen as fantastic buying opportunities for the consumers in these three key Asian gold markets. Asian demand has long been a bedrock and support for gold buying and prices. Their love affair with the safe haven metal has not changed.
In Conclusion
Gold prices move up and down. In May they have pulled back over $80 from their first quarter more than $200 per ounce rally. Instability and economic troubles in the world have not changed. Demand for the yellow metal as a safe haven and protection against central bank policies that will lead to inflation will always be present. Part of holding gold long term in retirement accounts means you have to learn to ignore the temporary sometimes wild price swings along the ride.
W. D. Crowder is an American published author with decades of experience in financial writing. He specializes in many areas, including: investment, economics, international relations and more.
