The Case For and Against Buying Gold

With all the ongoing craziness in the markets right now, we’ve seen a lot of movement in gold prices. If you’re looking to trade the precious metal, you should take a minute to hit up today’s post!

Why You Should Buy More Bling

As my man Dick Vitale would say, right now, it’s all about risk aversion, baby!

Over the past two weeks, Syria has dominated the headlines, as speculation that the Syrian government used chemical weapons on its own citizens has riled up the Western world. Now that the U.S., U.K., and France are considering taking military action against President Bashar al-Assad’s government, the markets are getting edgy and are concerned that this could lead to political tension and a disruption of oil supply chains.

But aside from this issue, there are a couple of other factors that are putting stress on the financial markets.

According to Treasury Secretary Jacob Lew, Uncle Sam is in danger of hitting the debt ceiling by mid-October. This means that Congress needs to meet again to discuss and figure out a way to pay for the government’s expenditures.

If the debt ceiling is not raised, this would leave the government with just $50 billion in its piggy bank, which wouldn’t even be enough to cover one month of what it has to pay.

On the other side of the government, we have the Fed looking to begin tapering its monthly asset purchases. The problem with this though, is that market participants are worried that by doing so, the U.S. economy may lack the support it needs and it may fall back into a recession.

If any of these issues escalate, it would push market sentiment even further in favor of risk aversion, which could provide a major boost for gold.

Reasons to Dump the Shiny Metal

Now let’s take a look at the opposite end of the spectrum which suggests that stocking up on gold isn’t such a good idea.

For one, market expectations have been heavily priced in already as traders have been making speculations regarding the Fed taper and debt ceiling vote for the past few weeks. In fact, the precious metal has already hit its highest price in three months as gold futures traded above $1,400 per ounce.

On top of that, it appears that buying momentum has already slowed down, as gold prices haven’t been advancing so strongly amidst news of a potential military strike in Syria.

Gold Chart

The charts seem to be telling the same story, as the weekly chart of gold shows that price is finding resistance at the 38.2% Fibonacci retracement level. At the same time, stochastic is almost in the overbought region, suggesting that gold bulls are running out of steam.

Do you think gold will keep up its rallies or is it about to reverse soon? Let us know by voting through the poll below!