We recently talked about using the CBOE Gold Volatility Index (GVZ) to forecast gold prices, but there are a few macro-economic reasons why we might see a big move in gold soon.
Consider on Tuesday that the gold sector as a whole was up 2.75%, with Golden Star Resources (AMEX:GSS) up 7.34%, Randgold Resources (NASDAQ:GOLD) up 5.48%, Vista Gold (AMEX:VGZ) up 4.88%, Kinross Gold (NYSE:KGC) up 3.57%, Goldcorp (NYSE:GG) up 2.98% and Yamana Gold (NYSE:AUY) up 4.44%.
But as you’ll see in the following video, there’s still plenty of time to trade the uptick in gold.
A couple catalysts that we think could drive this in the very short term are, of course, political. We think gold is poised to profit from improving expectations for growth because that would drive inflation expectations, and we could see gold pop up on that. The political issues are that if, in fact, Washington remains at the situation they’re in right now where they’re at relative impasse, gold tends to act very defensively to that and we would expect to see a fairly significant rally on that.
So, we look at it right now as we’ve got some very interesting opportunity. Just for the sake of an example, in the video I show you the big spike in gold’s chart the last time we had a debt ceiling argument in 2011.
These rallies are over fast, but when I say fast I mean a few weeks so we’ve got plenty of opportunity. I’m optimistic we’re going to see the debt and the sequestration and all of that stuff resolve productively, but I’m not stupid, either. I think there is the real possibility that they’re going to stretch it out as long as humanly possible to get as much mileage out of it, and that will drive uncertainty. That tends to be a good thing for gold because it’s a negative for the U.S. dollar and it’s a negative for other assets. Gold is one of those portfolio components that traders will add during a period of time like this.
Investor Place advisors John Jagerson and S. Wade Hansen are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next trade and get 1 free month today by clicking here.