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After a 12-Year Low, What's Going on with Gold?

Stocks in this article: BRD GG IAU PPP

On Jan. 17, the Shanghai Daily reported that information obtained from Jeffrey Nichols, managing director of American Precious Metals Advisors, suggests that the Chinese government may soon announce that it has more than doubled its gold reserves from 1,054 tons to 2,710 tons. Since 2009, the People's Bank of China has not reported an increase in its gold holdings. The Shanghai Daily article quoted the opinion of one expert who explained that if the Chinese central bank admits that it has made such an increase in its gold reserves, it would "drag up" the gold market.

After cutting back their expenses during 2013, the larger gold miners are beginning to spend money again, especially in the area of acquisitions. With gold mining stocks still at depressed levels, some of the larger miners see the present moment as the opportune time to buy smaller, struggling operations. Goldcorp (GG) launched a bid to buy out Osisko Mining (Toronto:OSK), and on Tuesday Osisko rejected the bid. Primero Mining (PPP) purchased Brigus Gold (BRD) in December.

Technical factors also support the bullish case for gold with a recently formed "double bottom" and a positive shift in relative strength and momentum. Gold prices will have to demonstrate some follow-through before anyone gets too excited, but this could be the moment which gold investors have been hoping for since New Year's Eve.

The only sure thing about gold is that the "barbarous relic" will continue its volatile ways as it usually has over its long and alluring history. Nevertheless, fundamental and technical factors support the notion that gold could go higher over the days, weeks and months ahead.

At the time of publication, the author's comopany, Wall Street Sector Selector, held shares of iShares Gold Trust (IAU), but held no positions in any of the other stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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