The first half of the year was great for gold, which rose by about 10 percent from January through June. While analysts were nearly unanimously bearish in January, there have been a couple of individuals outside of the gold community who have turned bullish, but the vast majority of mainstream analysts are bearish or neutral. They see a lack of interest in gold as the economy improves and stock prices continue to rise. When stocks rise people feel good, and there is no reason for them to hold gold.
And these people may be right in the near term even if they are mistaken in the long term. The gold price is near a critical resistance point at around $1,350 per ounce, and the price is trending downward if you take the August 2013 peak and connect it to the March peak. Assuming this trend line holds, we can see one more pop in the gold price before we see a reversal, and I would suggest that those with a short-term trading mentality take profits at this point.
But at the same time, I wouldn’t bail out of my entire position and go short. There are several driving forces behind the current upswing in gold, and while many of them have been in place for several years, many of them are especially acute now.
The first is demand from Asia and developing markets, especially in China and India. China’s demand for gold has been insatiable, especially since Westerners were so eager to sell the Chinese their gold at a discount over the past year and three months. While reports suggest that Chinese gold demand has tapered off this year, these reports only look at Hong Kong imports, which is just one piece of a massive market. In fact, we could see demand rise in response to China’s curtailment of polluting mining activities, which could feasibly reduce that country’s gold production. This would be a big deal, considering that China is the world’s largest gold producer.