Talking Numbers

Why the top could be in for gold

Why the top could be in for gold

The world is just as unstable now as it was a month ago. Yet, gold is now close to breaking below the $1,300 per ounce level.

Now, before gold bugs start panicking, let's put this all in perspective: Gold is still up about 7% since the start of 2014. That's seven times the return of the benchmark S&P 500 index for stocks. In 2014, gold is beating Google (up 3%), Apple (down 3%), Netflix (flat), Twitter (down 27%), and the US Dollar index (flat) among countless others.

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In other words, gold hasn't been such a bad buy this year. But will that continue going forward?

Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, says gold may take a hit in the short-term but the technicals are showing the yellow metal to be near a critical support level that could make for a buying opportunity.

"It looks to me as if gold has taken its position as the currency of fear once again," says Ross. "That's all well and good when Russia is annexing Crimea. But, when those emerging markets start to bottom and you get a strong rally and the macro unrest subsides, obviously, that going to hurt gold prices. That's what the catalyst behind this big pullback we've seen recently."

Ross sees notes gold has been trading in a range between $1,180 per ounce and $1,420 per ounce since June 201,3 with bullion testing and holding the $1,180 per ounce level in June and a couple of times in December. But, the level Ross is watching is $1,300 – or, to be more specific, $1,292 per ounce. That's where gold's 50-day moving average crossed above its 150-day moving average.

"That should be bullish," says Ross. "It should provide support for this pullback around current levels. A break below that level could send gold down to the low end of that range [$1,180 per ounce]. I think support holds and I think we get another test of the high end of that trading range [$1,420 per ounce]. I would be a trading buyer here of gold."

(Read: Gold settles around $1,300 as US data lifts dollar)

Portfolio manager Chad Morganlander of Stifel's Washington Crossing Advisors is taking the other side of Ross' trade. After owning gold for six years, his firm sold out its gold position because it sees improvements ahead in the US and European economies as well as improved capital and credit markets.

"Let's bottom line it: I would be short gold," says Morganlander. "I would not own gold in my portfolio. We think that the safe haven asset class is not necessary at this point in time."

Morganlander doesn't believe the current crisis in Ukraine will have a long-term effect on gold.
"We think the Russia/Crimea issue is a storm that's going to pass," says Morganlander. "Geopolitical premia are going to be compressed."

That and his expectations of better economic data ahead are leading Morganlander to see gold prices falling. "We would stay away from gold," he says.

To see the full discussion on what's next for gold with Ross on the technicals and Morganlander on the fundamentals, watch the video above.

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