Gold Loves Fear (again)

Gold has been one of the most stable and trending assets over past 5-6 months. The shiny metal closed above the huge 1300 level two days ago, and is currently pushing highest levels since May last year. The trend channel since November lows is intact. Next big stop is at the 1350 level. It seems the story of gold giving and giving continues.

 

Gold miners, GDX US, has also traded well, and we are seeing the ETF trade at very important levels. The negative trend line is right around these levels. Although the longer term 200 day moving average is not overly exiting, the 100 and the 50-day averages are both positively sloping. If the GDX US closes above the resistance here, expect a continued squeeze higher.

 

Surely the Gold play has some USD logic to it, but the DXY has not moved that much at all seen over past months. Note the 200-day average slightly lower as well as the trend line since March 2018.

 

Below is Gold versus the US 5-year breakeven rate. Seems little inflation in the system and gold seems to not care overly much about the inflation rate.

 

We could go on about the logic regarding gold, but one aspect of gold that got “lost” during the entire bull move in equities, is the fact that the bull “took out” the fear factor from investors. The Pavlovian investor was thought to buy the dip as markets always come back.

During the past year, we note a slight difference in investor´s psychology, especially the autumn sell off, and the moves that have followed. Elevated levels of VIX and a few spikes seem to have revived the fear hedge aspect of gold.

Below is the chart of gold and the VIX. Given the mean reverting nature of VIX, it never can trend as an asset, but note how the VIX spikes have been followed by gold since last autumn.

Source; charts by Bloomberg