Here we go again. After a couple of big trading sessions, gold – for the sixth time in five years – is approaching the $1,350-ish level that has, each previous time, stopped it cold.
It looks like fundamentals, including the Fed’s capitulation to choppy stock markets and trade-war related economic uncertainties, are trumping gold’s usual seasonality (strong in spring, weak in summer) at the moment. And those issues aren’t abating: Recent headlines paint a picture of an increasingly scary world:
There’s a lot more out there, but these four headlines are enough to convey the variety of dark clouds now combining into a perfect storm that has, among other things, spooked the Fed into openly discussing the next round of monetary experimentation. Just this week, Fed chairman Jerome Powell gave a version of ECB chair Mario Draghi’s famous “whatever it takes” speech in which he looked forward to exploring the “effective lower bound” (ELB), the point below which interest rates just can’t go. To have the central bank validating such an experiment – which, since we’ve never been there before, will have to be discovered by trial and error, the error being financial disruptions when rates get too low – is both unprecedented and a sign of how far out of control today’s monetary policy has spun. The markets seem to get this. Hence the pop in safe-haven assets like gold.
Here’s an observation from gold analyst Stewart Thompson:
SPDR (GLD-NYSE) tonnage surged to the 159 level yesterday. This is clear evidence that US money managers are also going for the gold! Chinese investors are reporting buying additional gold because they believe Trump cannot be trusted in negotiations.
I predicted that Chinese investors would begin buying gold instead of investing in stock markets as the trust issue reared its ugly head, and now it’s happening. The bottom line: It really doesn’t matter whether Trump can be trusted or not.
What matters is what US and Chinese investors believe, and they clearly believe that it’s time to go for the gold!
And one from commodities specialist Rick Mills:
The lives of gold mines have become so short, it takes longer to discover one and put it into production than the time from the onset of mining to closure.
Combine these supply factors with the demand-side reasons for owning gold right now. To recap, they include the series of economic indicators showing that US growth is grinding to a halt; worsening yield curve inversion; a potential trade spat with Europe waiting in the wings, as the US-China trade war appears no closer to a resolution; and the increasing tension between China and the US over Taiwan and the South China Sea, raising the possibility of war and a flight to safe havens like gold, and you have all the makings of a powerful and prolonged bull market for gold just as we are entering the most active time of the year for junior resource companies.
With all that is going on in the world, we believe the gold price will do well over the next few months
So will the sixth assault on $1,350 be the charm? And what happens when gold finally blows through this long-term resistance? That’s impossible to say, of course. But here’s hoping that old resistance becomes support and new resistance doesn’t form until somewhere in the $1,500s.