Market Overview

5 Golden Rings: Tis the Season For Higher Gold?

Today is Halloween, that time of year when youngsters and adults alike, dress up for a day, and escape the norm of everyday life. They go to parties, trick-or-treating, and celebrate the holiday that allows us to pretend, if only for a fleeting moment,that we are someone else.

(Check out Benzinga's top five stocks for a ghoulish Halloween.)

Tomorrow is All Saints Day, and then right after that, we get the start of the holiday shopping season. Global consumers will rush to get the latest gifts for their loved ones - and even themselves. From toys to electronics, to clothes, everything and anything gets purchased during the holiday season.

Some surveys have said that between 25% and 40% of consumers have already started their shopping, and one thing is likely to be on that list. Gold.

In India, it is a tradition to give gold as a gift during the holiday season, leading to upward pressure in the price of gold, and to a lesser extent, silver. If you look at the price of the gold ETF, SPDR Gold Shares (NYSE: GLD) as evidenced by this chart, you see that gold has rose sharply from All Saints Day, to the end of the year. Over the past few years, GLD has returned 4.6%, 4.66%, 19.99%, and 6.83%, respecitvely, from November 1 to December 31.

With the European Central Bank switching heads from Jean-Claude Trichet to Mario Draghi, the price of gold over the next few weeks will be worth watching. With gold being in a seasonal pattern to move higher, anything the ECB does in terms of rate decisions will be magnified. Trichet was known as an inflation hawk. Draghi is thought of as a hawk too, albeit not as staunch as Trichet is. Gold is generally thought of as an inflation hedge. If you have a dovish ECB, combined with a dovish Federal Reserve, we could see gold move sharply higher.

There has been some talk amongst those in the Federal Reserve, such as NY Fed President William Dudley and FOMC Vice President Janet Yellen, for the potential of additional easing. While no one knows what the Fed will do when it concludes its meeting later this week, the possibility for higher gold prices is definitely a possibility.

Technically speaking, gold could move to $1,800 an ounce, as it looks to fill that gap from middle September, shown here. Throw in the potential for more easing, seasonal strength, and the continued worries about Europe not really being fixed, 'tis the season for higher prices in gold.

The bankruptcy filing in MF Global (NYSE: MF) this morning is weighing on metals today, but that does not mean that gold will be suppressed for too long. Other firms will pick up MF's business, and gold could resume its move higher.

Some have talked about $2,000 an ounce gold, and some have even mentioned $2,500 an ounce as a potential target for the yellow metal. If the problems in Europe continue to persist and domestic growth slows, these targets could be reached easily.

When Santa Claus comes to town later this year, perhaps he will bring you some gold to put in your stockings and under the tree.

ACTION ITEMS:

Bullish:
Traders who believe that gold will move higher in the coming month might want to consider the following trades:

  • Buying the gold miners has not proved as profitable as buying gold ETFs. Traders may want to consider SPDR Gold Trust ETF (NYSE: GLD), which tracks the price of gold, or PowerShares DB Gold Double Long ETN (NYSE: DGP).
  • Traders may also move into silver, which should move higher as gold does. Consider iShares Silver Trust ETF (NYSE: SLV) or ProShares Ultra Silver ETF (NYSE: AGQ).

Bearish:
Traders who believe gold will move lower , especially if investor confidence does not get sapped may consider alternate positions:

  • If confidence comes back from some outside force, equities could soar. If Europe is able to give us concrete details on the EFSF plan, names like Baidu (NASDAQ: BIDU), Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL) etc. could soar from these levels.

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.

Posted-In: Long Ideas Short Ideas Specialty ETFs Technicals Commodities Markets Trading Ideas ETFs Best of Benzinga

 

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