India's Demand for Gold to Boost Prices Before Festival Season
With the U.S. markets taking a break thanks to Hurricane Sandy along with the upcoming U.S. presidential election, it's been a quiet gold marketplace.
On Wednesday, markets returned to action and December gold prices rose to a week high on the Comex of $1,720.40.
But even without activity in the States, gold prices have a major catalyst from another part of the world: India.
This year, India's demand for gold has been off as authorities blame the metal for the country's economic problems, higher gold import fees and a lower Indian rupee.
But Indians don't stay away from gold for long - especially ahead of festival season.
Festival season in India, which includes Diwali and Dhanteras, starts in November. Weddings will also take place during this period with gold jewelry included in dowries.
With a "pent-up' demand for gold in India, it has the potential next year to hit new highs -- past $2,000 an ounce, reported Emirates 24/7.
On Tuesday, trading in the December gold contract on the Multi Commodity Exchange (MCX) closed 0.01% higher to 31,097 rupees per 10 grams, after seeing a 30,968 rupee low--a level not seen since August, reported Reuters.
Gold Prices in 2013: Where We'll Be in Six Months
Gold investors have enjoyed a bull market for more than 10 years.
In fact, the metal's string of annual gains is its longest winning streak in at least nine decades.
So it is hardly surprising that some investors are questioning whether the strong performance will continue for gold prices in 2013. Recent market activity shows a short-term pullback is on its way.
As Money Morning's Chief Investment Strategist Keith Fitz-Gerald explained today, "Many hedge funds and institutions are using gold to collateralize their marginable assets right now so one of the first things they're going to sell to raise cash when faced with a margin call is gold. They're also sitting on large profits that they'll immediately begin to take off the table in a sell-off. This will end up catching a lot of investors by surprise because they expect gold to take off when the stuff hits the fan."
But that doesn't mean the long-term 2013 gold price outlook is doomed.
Fitz-Gerald said gold will take off - "but only after it takes an initial hit."
In fact, Money Morning Global Resources Specialist Peter Krauth said gold could hit $2,200 by April or May.
Looking beyond the sell-off, here are three key drivers of gold prices in 2013.
How to Play Q4 Defense: Hedge Your Bets, Up Your Stops and Sell Your Gold
So far fourth quarter earnings have made a mockery of things.
Of the 20 S&P 500 companies that have provided Q4 guidance so far, 18 of them have guided lower, "slashing" their forecasts, according to Goldman Sachs and CNBC (as of Monday afternoon).
What's more, roughly one quarter of the reported earnings have come in flat to middling. According to Capital IQ, overall revenues are up only slightly at 0.34%.
Yet, for some reason the S&P 500 is only 3.89% off of its highs and is up 12.01% year-to-date through Wednesday afternoon.
Under the circumstances this suggests two things to me:
- There's a lot of volatility waiting in the wings; and,
- The near-term risk is to the downside.
The Q4 Earnings Story
So far this earnings season, roughly one quarter of the S&P 500 has already reported. That leaves the market with nearly 375 companies that have yet to spit out their numbers, roughly 150 alone this week.
Assuming the balance follows the pattern set so far, companies like Caterpillar Inc. (NYSE: CAT), Philip Morris International (NYSE: PM), and 3M Co. (NYSE: MMM) are going to show "respectable" (under the circumstances) numbers while talking about the "challenges" they see ahead.
Meanwhile, a few others, like DuPont (NYSE: DD) and United Technologies (NYSE: UTX), are going to reflect weakening earnings and revenue pressures leading to further cost-cutting as a means of protecting profits. These will include job cuts.
I also expect the bulk of the remaining companies will take the opportunity to lower their expectations -- especially when you consider that 61% of the companies as of Monday afternoon missed revenue expectations.
The irony here is that 61% of the companies that have reported over the same period have also exceeded analysts' expectations.
Naturally the markets will punish those who missed even when what they should recognize is that the analysts were wrong yet again. But that's another story for another time.
What's important to understand is that top-tier company management is using this earnings season to accomplish three things.
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Dip in Gold Prices Nothing to Fear; Long-Term Outlook Bullish
A drop in gold prices earlier this week made some investors nervous, but the long-term factors pushing the yellow metal higher haven't changed.
Following a 5% increase and a rise in exchange-traded funds holdings in the third quarter, gold prices fell back to earth Monday, falling 1%.
It was gold's greatest one-day fall since July.
Most of the news that hurt gold prices was fleeting.
Positive U.S. retail sales data raised concerns the Fed would abbreviate its purchases of mortgage-backed securities. Investors were also worried early in the week about the possibility of weak Chinese economic data, although that didn't materialize - China posted growth of 7.4% on Thursday, as expected.
Finally, as Mitt Romney rises in the polls there's concern that as president he would implement bigger cuts to U.S. government spending, which would be bad for gold prices.
Gold Prices: Here's Why All the Hype Goes Beyond QE3
It was another bumpy week for gold prices that included two-week lows and a surge to seven-month highs.
On Thursday, December gold futures increased $26.90 (1.5%) and settled at $1,780.50 an ounce on the COMEX.
This represented gold's highest close since the end of the February.
As the week comes to an end and traders waited for more news from Spain, December gold was down on Friday morning to $4.10 to $1,776.40 an ounce.
Gold's price moves came from a number of factors this week including bargain hunters and weak U.S. macroeconomic data.
The bottom line is that the QE3 rally might have fizzled, but the long-term gold outlook still shines brightly.
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Investing in Gold: Why the "Golden Cross" is a Big Deal
Investing in gold and silver already offered staggering profit potential, and the opportunities just got even brighter.
Gold this week reached a "golden cross" and silver is perched to traverse one in a matter a days, following successive weeks of bullish trends in both precious metals' markets.
A golden cross occurs when the current price of a commodity (or an equity) and the shorter term moving averages "cross" or rise above the longer term 200-day moving average.
After 18 months of tepid and sometimes lower price movement, gold and silver have formed a large foundational base while enjoying two of the longest and strongest bull markets in history, according to research from Business Insider.
Now the golden cross has delivered technical support for higher moves for both metals.
"We're going to see new highs in both gold and silver in the first half of the New Year," said Money Morning Global Resources Specialist Peter Krauth. "I don't see anything that will keep this from happening."
Here's why Krauth is so bullish on gold and silver.