Time to Buy Gold?By Erik Gebhard of www.altavest.com –

Right now we’re looking at the August gold contract, as most traders have rolled out of June, as the “First Notice Day” for June futures is Friday (meaning all long contracts need to be offset or else they will enter the delivery process). Measuring from the low on 12/31/13 near $1187 to the March 17 high of $1392, a 61.8% Fibonacci retracement level targeted a pullback to the $1264 area. Prices have declined through that target area, and have slid through the $1250 area and into the $1240 range.

As equities have soared to new highs, U.S. Treasury securities have also found strong demand, pressing yields lower to levels not seen since last year. Historically, it is not often the case when broad-based equity indexes and debt instrument prices move so firmly upwards with such positive correlation. We expect that within this low volatility, quiet volume, and narrow breadth equity environment, this dynamic will soon revert back to a historical norm, with equity prices more likely to track alongside debt yields, not debt price.

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All the while, beginning on May 6th, the June $US index has firmly rallied, gaining about 150+ bp. Against such a fundamental landscape and headwinds, bullish gold sentiment faded, leaving the market vulnerable to a washout below recent support near $1280. The recent plunge in gold prices can also be tied to the last trading day for June options.

Buying the August gold contract right now would be quite an aggressive move for the typical speculator, nearly akin to attempting to catch a falling knife without cutting your hand. Yes, it’s possible, but we see the odds of successfully doing so as slim.

The large price gap above the market, measured from the May 27th low near $1291.50 and the May 28th high of $1267.50, will however likely be filled in, it’s just a matter of

when. We’d give the market more time to consolidate and build some sort of base of support, and then attempt to lightly enter into fresh bullish positions.

Bulls will note some promising macroeconomic fundamentals developing. India just relaxed its regulations on importing gold. We know that Germany has requested audits of the gold that it holds offshore. Austria reportedly has 80% of

its gold holdings stored in the U.K., and now they are also requesting an audit of their offshore holdings. Also, it was reported that Russia recently sold Treasury securities and purchased 900,000 ounces of gold. Russian leader Putin said that not only will Russia continue to favor “hard currency”, but that China will too, and that they will both take measures to ensure such reserves are held in a “rational and secure way.” This is another way of saying, “There’s nothing more secure than holding such assets close to our vest, in our own yard.”

Apparently, some trust is wearing thin among many geopolitical players, as nobody wants to find out that the valuable gold they thought they had has somehow gone missing. Further, it’s clear that gold has moved to the forefront of these sovereign nation’s minds, which infers a lack of faith in paper currencies. With sovereign nations now seemingly interested in an accounting of their offshore gold holdings and possible repatriation, such a sentiment could

help keep a floor under gold prices such that large dips will be viewed as buying opportunities.

About the Author: Since 1997, Erik Gebhard has been co-founder of Altavest Worldwide Trading, Inc., (www.altavest.com) a commodity futures and options trading firm. Altavest, in conjunction with its educational affiliate, FuturesANIMAL (www.futuresanimal.com), educates clients via webinars and live seminars. Altavest offers a proprietary user-friendly options trading platform with daily suggested trades and risk and profit controls, as well as full-service trading advisors at discounted commission rates and managed accounts.

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