Is Gold Still a Safe Haven?

 | Dec 13, 2011 | 11:30 AM EST
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Most raw commodity markets have suffered serious indigestion lately from the turmoil surrounding the European Union and its ongoing sovereign debt crisis, including sector leader gold. Tuesday, the precious yellow metal scored a fresh seven-week low of $1681.70 an ounce, basis the most-active February Comex futures contract.

Gold prices have backed down by about $250 an ounce from an all-time record high of $1925.10, basis February futures, scored in early December. Near-term technical damage has been inflicted on gold this week, as price action has negated a two-and-a-half-month uptrend on the daily chart. Now, prices are in a four-week downtrend on the daily chart, from the early November high of $1806.60, basis February futures.

The next downside technical objective for gold market bears is pushing nearby futures prices below psychological support at the $1600 level, which would produce even more technical damage. For the gold market bulls to regain upside near-term technical momentum that suggests restarting a near-term uptrend in prices on the daily chart, they would have to push February futures back above solid technical resistance at the December high of $1767.10.

From a longer-term technical perspective, a 10-year price uptrend remains firmly in place on the longer-term monthly chart for Comex gold futures. This suggests that longer-term buy-and-hold investors who've been in the market for a while still have little to worry about. It would take a drop in nearby gold futures prices below major psychological support at $1500 to dent the longer-term technically bullish posture of the gold market and suggest that a major market top is in place. Until that happens, the path of least resistance on the monthly chart will remain sideways to higher, which hints that new all-time record highs are still possible in coming months.

The gold market bulls have recently been frustrated on the fundamental side of the market, too. The EU debt crisis has not provided gold with much safe-haven investment demand in the past few weeks. The U.S. dollar, which is also considered a safe-haven asset, has benefitted from the recent EU crisis. The strengthening greenback, by itself, has also been a bearish underlying factor for the gold market.

In previous months, gold had been supported by safe-haven buying due to the EU debt crisis. But recently, the market has acted more like other commodity markets in being a risk asset, which tends to be under pressure when there is keener uncertainty in the market place. Don't be surprised to see gold again attain a safe-haven-investment status, should there be a fresh geopolitical shock event, or if the European Union debt crisis escalates again.

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