Recently, the precious metals have received massive media coverage. Some traders say that gold is a bubble and is now bursting. Other traders say that gold is the only safe haven for people to put their money. It is important to note, gold is now in a 10 year bull market. Bull markets such as the one we have seen in gold will simply need to have a correction from time to time. If you ask the average person on the street if they own any gold bullion or gold coins they will tell you no. In fact, most people do not own any gold or silver outside of their personal jewelry. This tells us that gold may be do for a pullback or correction in the near term, however, a bubble is a little bit of a stretch at this time.
Gold is the ultimate indicator of central bank activity. When central banks increase the money supply or add cash reserves at the major banks gold will usually trade higher. Many banks are now taking gold as payment and collateral. This tells us that gold is still in demand and more importantly becoming a currency.
Back in late April 2011, silver was surging higher, nearing the $50.00 an ounce level. At that time, the CME Group increased margin requirements on four separate occasions. This margin hike caused silver to sell off sharply as many speculators simply did not have enough capital on hand to hold the position. On two separate dates over the past month the margin rates were increased for gold. The price for gold declined sharply from the August 22, 2011 high. Many traders and investors are now worried that margin hikes will be implemented again for gold. This fear of margin increases is now keeping the price of gold contained. This tells us that gold should simply be traded at this time. Remarkably, gold is still holding up very well considering the sharp decline that occurred on August 24, 2011. Believe it or not, gold can still make new highs from here if it can build a base and consolidate around the current levels.
The gold bull market is still very much alive. Gold may need to correct or pullback in the near term, however, that would actually be healthy for gold. Traders can watch for intra-day support on the SPDR Gold Shares (NYSE:GLD) at the $176.25 and $175.00 levels. The intra-day resistance levels for gold are around the $178.50 area.