Market Overview

Take Your Pick: 2012 Gold, $2000 or $1300?

Gold futures plummeted on the back of the Federal Reserve's comments at its FOMC meeting, last Tuesday.

The Federal Reserve released its last FOMC statement of the year last Tuesday, which reversed a decent rally in the Dow Industrial Index, and also caused precious metals to move lower in the days following.

The cause for this risk-off trade was because the Fed did not hint at more quantitative easing. The Fed pointed out that inflation has moderated since earlier this year, and that long-term inflation expectations are stable. The Fed ended its inflation commentary, saying that they expect inflation to settle at an acceptable level and will pay attention to changes in inflation expectations going forward.

Without hints at a new quantitative easing program and comments about inflation, risky assets across the board sold off. Gold fell over $35 per ounce after the 2:15 p.m. announcement, and even more in the days following. Benzinga Professional covered the events in real-time, so subscribers could take advantage.

Over the last few weeks, major banks have released their outlook for gold in 2012.

Barclay's targets gold at $2000 per ounce in 2012 and UBS expects gold to trade to $2050 per ounce. Both targets are approximately 5% above the all-time highs of $1923.70 per ounce.

Goldman Sachs's target on the precious metal for 2012 is at $1810, which is about 6% off all-time highs.

Benzinga reached out to precious metals analyst and trader Marty McNeill at R.F. Lafferty for his take on the outlook of gold.

“We expect Europe to announce some sort of quantitative easing in 2012,” McNeill said. “Currently, we are just seeing a minor consolidation in gold. As hedge funds return to the market in January, we will likely see it trade over $1800 per ounce in 2012, however, it will take time for gold to move higher.”

Going against the grain, on December 15th, Benzinga spoke with Brian LaRose, technical analyst at United-ICAP, who believes gold could continue its fall, even to the $1300s per ounce level.

"Commodities and Equities are sitting at a critical juncture," LaRose said. "The S&P 500, Gold, WTI Crude are sitting at major support levels and the U.S. Dollar is sitting at major resistance. We could see a short-term turn higher in risk assets, however, I believe it will be just corrective in nature."

LaRose concluded, "Ideally the U.S. Dollar holds above 79.700, before continuing its rally higher to 84.000-85.000. If this happens, most riskier assets like commodities and equities will suffer a severe pull back. Gold could easily sink to $1425, even 1300 and WTI Crude could fall all the way to $64."


ACTION ITEMS:

Bullish:
Traders who believe that Gold is just correcting a bit and will trade higher in the new year, you might want to consider the following trades:
  • Going long the SPDR Gold Shares ETF (NYSE: GLD). If gold moves higher in the New Year, same with the GLD as it tracks the precious metal.
  • If gold does well, so will silver. To add more leverage to your position, try the ProShares Ultra Silver ETF (NYSE: AGQ)
  • As the U.S. Dollar Index is basically negatively correlated, try shorting the Dollar, with the US Dollar Index Bearish ETF (NYSE: UDN).
Bearish:
Traders who believe that Gold is broken and this is just the beginning of the decline, you may consider alternative positions:
  • Going short the SPDR Gold Shares ETF (NYSE: GLD). If gold moves lower in the New Year, same with the GLD as it tracks the precious metal.
  • If gold continues to struggle, so will silver. To add more leverage to your position, try the ProShares UltraShort Silver ETF (NYSE: ZSL)
  • As the U.S. Dollar Index is basically negatively correlated, try going long the Dollar, with the US Dollar Index Bullish ETF (NYSE: UUP).
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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