Sense on Cents

The recent spike higher in the U.S. Dollar Index is having a dramatic impact on a variety of markets, but none more than gold.

Gold traded over $1200/oz. a mere few weeks ago, but it has retraced 10% from that level and is now trading at approximately $1080/oz.  Many long term prognosticators forecast that our greenback will continue its trend lower. As such, commodities in general and gold specifically should benefit.

That said, I remain concerned about getting heavily involved in commodities, especially gold, because of the fact that there are many short term speculators involved in this sector. What happens given the preponderance of those market participants? Excessive volatility in the price action.

With gold dropping off the face of the cliff as pictured below, it is highly likely to fall into the $1050/oz range. Why that level? $1050 represents an approximate 50% retracement of gold’s move on the year.

Unless you are the type thrilled and skilled at skiing black diamonds, I recommend keeping gold plays to a small percentage of an overall portfolio.

LD

This entry was posted on Tuesday, December 22nd, 2009 at 12:45 PM and is filed under General, gold. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.