Please note, that this article comes from my archive. Check the actual date in the header.
Gold exists in contradistinction to money. It’s interesting to compare prices of something which exists with something which does not. The helmet will help in this tough comparison.
Seriously, I scratched my head a lot of times trying to understand fundamental reasons why gold is going up together with equities. We observe rather strong worldwide economy recovering in a sustainable way, stock indices do well, some central banks are ready to start tightening cycle. Something is missing. OK, geopolitical tensions. North Korea launches missiles and has nuclear tests. But is this concern enough to move prices of gold for 1100 pips in two months? I have a doubt. The greenback is weak against the basket of most traded currencies. But does this reason create additional demand for safe heaven precision metals? I have a doubt. Industrial metals soar in August as China demand picked up the momentum. Well, again, is this a reason to buy gold? I have a doubt, because usually when worldwide economy grows, investors prefer high risk assets rather than safe havens. Something is missing.
What if we try to look at this picture with a different angle? History first, as usual. Gold soared in 2008-2009 years of huge financial crisis, starting a long-term uptrend from $600-$700 range. Record high prices above $1800 per troy ounce were posted in 2011. A bounce back down ended in June 2013 slightly below $1200. By the way, what is average value of the previous uptrend? Wow, it’s $1225. Look at the GOLD FUTURES monthly chart below.
Ohh, now we see that we’re on a sideway range since mid 2013. We do not have any significant trend in either direction since then. Moreover, technicals show strong intention of the price to test higher level of this range around $1400. And what happened last three times when gold tried to move here? Yes, it went back down to lower level of the range around $1050/1150. Technical confirm: Bollinger Bands indicates upper range with the lines headed each other showing comparatively low volatility. RSI posted value 58.99 before reversing in July 2016.
Let me also remind you what was the accelerator for the gold to climb in November 2016. No, I’m not talking about a blonde man who likes to Tweet. I’m talking about the expectation of tightening from Fed. Long term tightening cycle, which could of shift long-term big money positioning from safe haven like gold to safe haven like US bonds. It did not happen. The yield of 10-year treasuries remains low. It can hardly cover even the inflation! Market expectations for a rate hike in December are below 30% so far. Well, the US economy is strong, GDP nearing 3%, unemployment is at historically low levels. So what? With the inflation below the target of 2%, FOMC cannot justify the interest rate hike.
So the price of gold came back to the levels of the autumn previous year roughly. Euphoria is over. Nothing more.
One more reason why gold is strong together with equities. Gold market does not have a regulator. There is no central bank to step in and to make verbal or real intervention, so speculators may relax and continue pushing the BUY button.
Assuming all said, we suggest the gold prices to test $1400 in the nearest future. We’ll be looking for good levels for strategical shorts from there. Maybe, one of the fundamental triggers for reversal could become the end of Yellen’s term as the chairman of the Federal Reserve. Damn, “Chairwoman”, sorry. But it would be a completely different story...
We’re long on gold pullbacks till then. Who knows, what is on Kim Jung Un’s mind?
Let the profit be with us and let us have a dandy catch!
Please note, that this article comes from my archive. Check the actual date in the header.
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