2011-11-21

The long-term technical outlook does favor higher prices in 2012

With gold suffering its worst week since September 19-23, many investors have been left wondering if further downside lies ahead.

The tepid performance of the yellow metal in recent months has led to a rising sense of “apathy” among gold investors, according to Forbes contributor Tom Aspray. This afternoon, Aspray argued that this recent lack of interest in the gold sector is a likely catalyst for higher prices in the months ahead.

“The $54 decline in the February Comex Gold contract Thursday took the futures to two-week lows, while SPDR Gold Trust (GLD) lost 2.5%,” Aspray wrote. “The rather steep decline did not seem to drive headlines like it would have a few months ago…Most analysts seem to be pointing to the drop in crude oil prices and firmer US dollar for gold’s decline. Another factor may be the missing $600 million in MF Global customer funds, which has jarred the confidence of futures traders around the world.”

Aspray went on to say that “The lack of reaction to gold’s drop is what I would expect from a market that is in a consolidation phase. These are typically marked by sharp rallies and sharp declines. It has been almost three months since gold topped in early September, and many of those that were caught up in gold’s powerful summer rally appear to have lost interest.”

He subsequently discussed his contrarian perspective on the gold market, contending that “Apathy, of course, is what the gold market needs in order to form a base from which to launch its next rally. An increase in bearish sentiment would also help, but we may not get it.”

Aspray noted that “The long-term technical outlook does favor higher prices in 2012,” but did not provide a specific gold price target.

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