Gold Should Take a Breather

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At the beginning of the year I wrote an article in which I argued that investors should purchase gold regardless of the momentum-driven bearish hype and the ubiquitous belief that the price of gold is going to continue to fall. Since then the price of gold is up from about $1,200 per ounce to $1,280 per ounce, or over 6 percent. This may not seem like a lot, but annualized this would put gold higher by a whopping 75 percent for the year.

While I believe that the price of gold is ultimately going to much higher levels, I think investors need to wait a little in order to buy again.

The negativity has largely remained in gold among larger analysts, and this gives me reason to be bullish as a contrarian. For instance, Goldman Sachs’s Jeffrey Currie told CNBC that gold will continue to fall. He has a price target of $1,050 per ounce. Bank of America Merrill Lynch believes that the price will fall as well, to $1,150 per ounce.

This is the sort of negativity that we see toward the end of bear markets, just like we see unbridled enthusiasm toward the end of bull markets. Recall that in 2011 Goldman Sachs was actually bullish on the price of gold.

With sentiments reversed I am far more optimistic that we have seen the bottom in the gold price, or that we are very close.

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