25 September 2018
Is gold climbing out of a bear market or just on the rebound? Photo: Bloomberg
Is gold climbing out of a bear market or just on the rebound? Photo: Bloomberg

Back in love with gold or just on the rebound?

The gold price has added 7.25 percent since the start of the year to reach US$1,290 per ounce amid a slump in the global stock markets. The precious metal’s improved fortunes are a sea change from the 30 percent hit the price took last year.

Investors have even taken a shine to gold miner stocks, with the long-time laggard sector surging and outperforming physical gold so far this year. Exchange-traded fund Market Vectors Gold Miners, which invests in big mining firms, has risen 21.4 percent in the year to date. Market Vectors Junior Gold Miners, which invests in small miners, jumped 34.7 percent.

But the Hong Kong Economic Journal’s investor diary column argues that as long as prices stay below US$1,434, the rosier glow is just the price rebounding from previously oversold levels.

Going by the usual technical definition of a change in a long-term trend, the gold price would need to gain 20 percent in total for analysts to call time on the bear market. Since gold prices hit bottom below the US$1,200 mark in December, a 20 percent gain corresponds to a tipping point of US$1,434.

That said, there are some initial signs of sustained recovery, as reflected in gold’s repeated challenges to the 144-day moving average — a key barrier suggested by chartists.

Short selling is therefore no longer such a smart trading strategy.



Freelance journalist

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