Is Gold On the Move?

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Thursday’s move solidly above the $1800 level may represent a resurgence for the gold market after the metal moved sideways for several weeks.  As the metal languished between the $1700 and $1800 levels, hedge funds increased their short positions while frustrated longs exited the market. Gold’s lack of an upside breakout above $1800 was a primary reason cited for recent and bearish hedge fund activity.

 

Oh how things can change in a day. The yellow metal is seeing a solid rise today, with spot prices up nearly $30 per ounce. That ascent has put gold back above the $1800 level with plenty of room to spare. In lunchtime trade, the metal is sitting around $1815 and will close not far off the highs of the day. The day’s strength seemingly points to further momentum ahead as short-term traders look to capitalize on the move, buying into the market as prices rise.

 

The inflation narrative is a primary factor for higher gold prices as concerns mount over rising price pressures. Real bond yields now sit at the lowest level since mid-February, with 10-year breakeven rates also higher. These factors are having a bearish impact on the dollar, and further dollar weakness could also send gold and other precious metals soaring higher.

 

Despite gold’s sharp rise Thursday, the bulls still have their work cut out for them. For starters, the bulls will need to maintain the day’s momentum through the close on Friday to prevent any bearish activity from taking hold. Assuming that hurdle is cleared, the market must then make a move to resistance in the $1850 area for a key challenge. If that is not enough, the bulls will also have to contend with the market’s 200-day moving average just above that region in the $1870 area.

 

Given much of the market’s recent sideways and lackluster price action, the bulls may not become overly excited unless the market takes out resistance in the $1850 region. A move through this area, on a closing basis, could set the stage for a bullish ignition in the market that could take gold to new all-time highs and beyond in the weeks ahead. The gold market needs to contend with changing inflation expectations, changing policy expectations and competitors such as Bitcoin. Despite these potential obstacles, however, the gold market appears to be in a solid, long-term position in which it may gain ground and rise in value. Unlike Bitcoin, however, the gold market may take longer to rise in value, although such a rise could prove to be far more sustainable over the long run.

 

Despite improvements in the economic data stream, the Fed is unlikely to change its position anytime soon. Friday’s jobs report, in which the country is believed to have created nearly 1 million new jobs in April, could be a simple litmus test of gold’s resolve. If the nation did in fact add a lot of jobs, it

stands to reason that expectations for changes in the Fed’s thinking could rise. Such a scenario could be considered bearish for gold and prices could fall. On the other hand, if the jobs data is far weaker than expected, it could add to the line of thinking that concludes the central bank will not make any moves for some time to come. This scenario could be considered bullish for gold and prices could rise on the news. Either way, the jobs data is unlikely to be a major factor for gold in the current setting and any price action in gold may prove to be nothing more than knee-jerk in nature.

Basel III Effects on Gold

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Sometimes the rules work in your favor. That is expected to be the case as the rollout of Basel III takes place in Europe and Britain. The European rollout is set to take place at the end of the month, while the British rollout will not go into effect until January.

 

To understand how these regulations may be bullish for gold, it is important to understand what they are and their intentions. Basel III is effectively a set of regulations for bank capital, stress testing and market liquidity. Although many of these guidelines were introduced following the financial crisis of 2008/2009, many aspects of the guidelines are only being rolled out this year.

 

Basel III will make gold a risk-free asset, while making unallocated gold more expensive to transact. This would seemingly make it wise to purchase physical gold, with substantial rewards awaiting those that do. Making gold a risk-free asset may strongly encourage central banks to buy more, as it may serve to balance their books.

 

The decision to make gold risk-free was not made recently. It is a decision that goes back to 2017, a year in which central bank gold buying hit a record of over 650 tons. The massive 2017 gold buying may serve as an illustration of how the risk-free status may cause additional buying of the metal, and a new record could very well be seen in the year ahead.

 

One of the most interesting aspects of Basel III is the fact that it does not classify gold as a commodity but rather a currency. This would seemingly suggest the opinion of gold has shifted, and that it is viewed as less of a risky and volatile instrument but as more of a stable form of money. This makes a lot of sense, given the fact that some believe gold is the last true form of money that exists.

 

With central banks essentially being given the green light to load up further on gold, there may be little standing in the way of dramatically higher gold prices in the months and years ahead. If global central banks (the most powerful financial institutions on Earth) see reason to buy and hold physical gold, shouldn’t you?

 

The most recent Basel regulations seem to underscore what we and other bullion fans have been saying for a long, long time. The gold market is not simply a commodity and not simply an “asset.” The yellow metal serves a very important purpose. Gold, unlike fiat currencies, can maintain its value over time. Unlike fiat money, it cannot be manipulated (creating more out of thin air), and it is of finite supply. As the Federal Reserve and global central banks continue to ruin their respective currencies, gold may be the last man standing. That makes now the time to start planning ahead. The protection of your financial future depends on taking action, and that action has never been as important as it is now.

 

Every single dollar you currently own and every investment you have that is dollar- denominated is likely to lose significant value in the years ahead. If the thought of paying $8 for a gallon of milk or $6 for a loaf of bread frightens you, then you need to carefully consider how your life may be affected if the dollar drops in value substantially. In our view, it is not a question of “if” but rather “when.”

Short Trading Week Ahead

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The gold market is off to a slow start Tuesday as the holiday shortened trading weeks gets started. Spot prices are down a few bucks per ounce, taking the metal below the $1900 level in the process. Earlier in the session, gold hit a five month high before seeing some profit taking and selling enter the market. Bullish price action in two key outside markets, including higher oil and a weaker dollar, may keep gold prices from declining much further today.

 

The notion of rising inflation will also play a role in gold’s price action this week as investors become increasingly concerned over the idea of increasing inflationary pressures. Gold ETFs have seen an increasing amount of capital inflows in recent weeks in a trend that may continue. The rising inflationary concern may keep the gold market well supported for the months ahead while also pressuring equity and bond markets. Such a market scenario could lead to an uptick in gold and silver prices while providing these markets with the ammunition necessary to challenge previous all-time highs or beyond.

 

In addition to oil and the Dollar Index, gold investors are also likely to pay close attention to Bitcoin and the crypto space in the weeks and months ahead. Bitcoin recently traded as high as $65,000 before seeing a pullback that has dragged the digital currency down to the low $30,000 range. The recent volatility in Bitcoin and other cryptos may be due to several factors and it will be interesting to see if the currency stages a powerful comeback. Although some analysts have suggested that much of Bitcoin’s recent ascent was due to inflation hedging purposes, it seems unlikely that such an instrument could overtake gold as the leading hedging instrument. The amount of volatility seen in Bitcoin may be too high for the average investor to stomach, and a hedge that cannot be held onto for the long-term is not really a hedge at all.

 

Despite Bitcoin’s flaws and its volatility, it is likely to continue to compete with gold as a viable hedging instrument. That being said, if the price of Bitcoin really falls apart even further, much of the capital that would presumably exit the currency could find its way into the gold market. This could keep gold’s trajectory moving higher, albeit on a much slower pace compared to Bitcoin. That slower pace may become increasingly attractive to investors that have been burned by Bitcoin or cryptocurrencies, and it may keep the trend up in gold for the foreseeable future.

 

The bulls have again taken full control of gold on the daily chart and the trend remains higher. The bulls will likely target previous resistance around the $1970 area as their next objective, while the  bears may target support seen in the $1850 region. If the bulls are able to take out the January highs around $1970 on a closing basis, look for the market to put together a powerful and rapid rally that could take it to previous all-time highs or beyond.

Stronger Gold as Dollar Holds

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The gold market is slightly stronger in late morning trade Monday as the dollar holds near the day’s lows. The dollar is trading at the weakest levels since February while the gold market is holding near a 4.5 month high.

 

In the aftermath of last week’s market volatility, the yellow metal has rebounded, retaking its 200-day moving average in the process. With the dollar stuck at three month lows and treasury yields remaining subdued in recent action, the gold bulls may be in a position to take firm control of the market, challenging the $1900 level in the process.

 

The recent sell-off in cryptocurrencies has also likely boosted the gold market. Bitcoi  and other digital currencies have seen some tough sailing in recent sessions. Bitcoin has now declined by some 50% from recent highs, with a cathartic decline of over 30% in a single day being seen last week. The currency is seeing some buyers wade into the market on Monday, however, as prices are up nearly 15% in mid-morning trade.

 

Rising U.S. Inflationary risks have kept investors on their toes in recent days and will remain a key piece of market stimulus for the foreseeable future. This week, several fed officials are set to speak and investors will be paying close attention. Despite the central bank’s reiteration that it is going to remain very patient with monetary policy, the last Fed meeting minutes released last week threw some doubt into the picture. The speakers this week may stick with the Fed’s patient policy, or they may signal that inflation is an increasing risk and policy may require changes sooner than anticipated.

 

The Fed and its plans are likely to be the primary market focus in the months ahead. A dovish Fed could keep stocks moving higher while also fueling buying in gold and other hard assets. An increasingly hawkish Fed, however, could have the opposite effect and could send both stocks and gold sharply lower. Any clues provided by the Fed may have a significant market impact and could be market moving.

 

Investors will await further economic data this week to form opinions on the Fed and what it may or may not do. The latest readings on gross domestic product, durable goods and weekly jobless claims may all impact markets. These data points could also give the Fed more to think about as it shapes policy and looks to steer the market clear from the ongoing viral pandemic. Like stocks, gold also stands to move based on economic data.

 

The yellow metal has garnered additional attention in recent days and that may fuel further upside as positive momentum builds. The breakout above $1800 as well as the 200-day moving average make it a buyers’ market, and any dips are likely to be aggressively bought until proven otherwise. The $1900 area may be tested in the days ahead, possibly this week, and if the market is able to break out above this level on a closing basis there may be little to hold it down for long. The bulls may look for a lasting run that could see the market drift rapidly towards the $2000 area.

Weaker Crypto Stronger Gold

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Weaker crypto could hold the key to stronger gold. Recent price action would seemingly suggest that investors are in the market for alternative asset classes that may provide a hedge against rising inflation and a weaker dollar. Investors may have more choices today, however, on where to put that cash to work.

 

The rapid and sharp rise seen in Bitcoin in recent months could be indicative of what investors are thinking. The digital currency saw a rapid run higher, marching from under $20,000 per coin to over $60,000 per coin in a matter of months. Although the rally may be largely dismissed, there are those that feel the buying in Bitcoin and cryptos represents a changing of the guard when it comes to alternative asset classes.

 

As the price of Bitcoin climbed steadily, the value of gold languished sideways. Obviously, there could be multiple reasons for this. It does seem odd, however, that as capital flowed into crypto it did not show a significant flow into gold. After hitting a peak recently of over $60,000, the Bitcoin market has reversed course and has dropped some 40% from the high. During this decline, the price of gold has garnered strength and the yellow metal could be on its way to previous all-time highs or beyond. To the layperson, it may seem as if capital is now flowing into gold as it flows out of crypto.

 

If selling pressure in cryptos remains in place, buying pressure in gold could mount. Investors are hungry for an asset that can protect them from rising inflation and dollar weakness, and the gold market has a very long history of being a reliable store of value and protector of wealth. That trend appears set to continue as inflationary pressures steam up and as the Fed keeps rates low and policy loose. Investors may, at times, seek out Bitcoin or other cryptos. These asset classes do not have gold’s history, however, and cannot be held in the hand like gold bullion. They may, therefore, lose ground to gold in the race for capital and the yellow metal may rise while cryptos move sideways or decline.

 

Slow and steady often wins the race. That anecdote may prove to be the case when it comes to gold and cryptos. The long-term investor is likely more concerned with the asset’s long-term capabilities and rapid price ascents are not overly impressive. Smart investors also understand that markets do not typically go straight up or straight down. The more rapid and aggressive the move higher in Bitcoin or cryptos is, the more likely the market may come back down at some point to back and fill. This tendency can lead to many buyers getting caught buying at or near the highs, right before the market corrects. As these buyers look to exit the market, the sell-off may intensify driving prices even lower.

 

The relationship between gold and cryptos is a new one and may be worth watching in the future. Until proven otherwise, it would appear that gold is the superior asset class for wealth protection and long-term investors may find it far more suitable compared to cryptocurrencies.

The Week Ahead

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The gold market started the trading week off on a strong note. Spot prices gained over $20 per ounce as buyers flocked into the market as cryptocurrencies took a hit. Shaky equity markets also likely played a role in gold’s upside Monday. In addition to the several key bullish issues the markets are considering, the bullish daily price charts are also attracting buying interest.

 

The gold market’s push Monday to above its 200-day moving average suggests further upside could be in the cards. The metal’s recent bullish price action has again attracted the attention of larger market players. According to the Commodity Futures Trading Commission (CFTC), the metal has once again seen an increase in the number of speculative long positions by money managers as the number of bearish positions declined. Net long positions in the market soared by over 50% since last week, and the market could be at the beginning stages of a significant rally period that could see it reach previous all-time highs or beyond. The breakout above the $1800 level seems to be a big factor in the latest reversal of gold’s fortunes, and the breakout above this level has triggered additional buying interest in the market.

 

The copper market has been smoking hot in recent trade, and last week’s fresh all-time highs could also be a bullish factor for gold. Copper has not only been impressive in recent months, but could have significant additional room to grow as supplies shrink and demand rises.

 

Also adding fuel to the fire is higher crude oil prices. Blackl gold hit the highest level in over two years Monday and could point towards rising inflationary pressures in the months ahead. As the price of crude heads higher, demand for gold could also rise as investors seek out asset classes that may act as an inflation hedge.

 

The three month high hit in gold today may also be partially due to a decline in treasury yields. Easing yields for the benchmark 10-Year Note could be a major factor for gold in the months ahead. With yields having likely reached a swing high for the time being, any further easing may be bullish for gold as it lessens the opportunity cost of holding the metal. Investors will now turn their attention to Wednesday’s release of the latest Fed meeting minutes, looking for any clues about the central bank’s future plans and concerns over inflation.

 

Gold’s recent rise coupled with its upside breakout above the 200-day moving average have the bulls in from control on the daily chart. The bulls will look to extend that control and may target the $1900 level in the sessions ahead. With little upside resistance in gold’s path, the yellow metal may now make a swift move towards previous all-time highs. A challenge of those highs may become increasingly likely if current market trends remain firm. A breakout above the previous high on a closing basis could pave the way for a sharp and rapid move higher in gold that could see the metal moving quickly towards the $2500 and then $3000 levels.

 

 

The Week Ahead

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The gold market is picking up this week where it left off last and is moving solidly higher in early Monday action. Spot gold prices are up by over $11 per ounce in early trade and could see more buying as the day progresses.

 

The upside breakout seen in gold last week has given the bulls some fresh ammunition with which to work. Now trading around $1842 per ounce, the market has quickly put significant distance between itself and previous resistance at the $1800 level. The upside breakaway is likely to attract further buying interest as prices rise. Momentum and short-term traders may jump into the market to capitalize on bullish prie movement while the bears are forced to cover short positions, also driving prices higher as a short covering rally also takes place.

 

The Federal Reserve may now find itself in a very challenging position. Despite a recent uptick in inflationary price pressures, markets have yet to demonstrate that they will be open to accepting higher interest rates. Higher treasury yields have actually been the primary driver behind several market sell-offs in recent months, and a move towards higher rates by the central bank could act as the mechanism behind a major market sell-off or reversal.

 

The Fed has acknowledged the possibility of hotter inflation and appears willing to let prices run higher for a period of time before taking action. If the central bank does not want to fall behind the curve, however, it may need to act sooner than many anticipate. If the Fed does take action, or even discusses the possibility of action, the markets may react in a fashion similar to that seen several years ago during the “taper tantrum.”

 

When the U.S. previously announced a reduction in the pace of its bond purchases, yields quickly soared on the news as investors were quick to sell treasuries, forcing yields higher.

 

In its quest to boost and support the economy as it recovers from the ongoing viral pandemic, the Fed has perhaps set itself up for a major market shock that could affect treasury, credit and equity markets. A crash in these sectors could not only weaken the economy, but could put the economy back into a stall mode, forcing the Fed to come up with alternative ways to support activity.

 

Treasury Secretary Janet Yellen last week announced her concern over rising inflation and suggested that the Fed may have to act to prevent an overshoot. Yellen’s remarks sent markets tumbling, and once the damage was seen she was quick to retract her comments by suggesting her opinion that inflation will not become a significant problem.

 

The concerns over inflation and the Fed are not likely to diminish anytime soon and may increase further in the months ahead. The combination of rising price pressures with increasing stimulus could keep the inflation hawks on the lookout while pressuring the Fed to act sooner rather than later. An increasingly hawkish Fed may keep the gold bulls at bay while a dovish Fed is likely to fuel further gold upside in the months ahead.

Gold Pops as Jobs Stop

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The yellow metal is not only holding firmly above the $1800 level but is now adding additional momentum. Gold prices are sharply higher in early am trade as the jobs data for April was grossly disappointing.

 

The U.S. reported that the nation added just 266,000 jobs for April, with the unemployment rate at 6.1%. The jobs added figure is a big miss from consensus estimates which were looking for 1 million jobs added last month. Non-farm payrolls for March were also revised lower from a previous reading of 916,000 to 770,000. The April unemployment rate ticked slightly higher from 6 to 6.1%.

The huge miss in April jobs data should effectively quell the notion that the Fed may have to hike rates sooner than anticipated. The employment data instead paves the way for the Fed to keep its foot on the gas pedal.

 

The idea of ultra-low rates and QE staying in place for some time to come should have a bullish effect on gold and certainly appears to be showing that effect on Friday. The combination of weaker economic data, lower treasury yields and rising inflationary measures could all fuel further upside in gold. The market may, in fact, pose a challenge to recent all-time highs in the weeks ahead. The metal could even move well beyond that level into fresh all-time high territory.

 

The gold market does have some obstacles in its path that it will need to overcome. Economic strength may become an increasingly important barrier to higher gold as the weeks go by. Competition from alternative asset classes, such as crypto, may also become increasingly measurable. Despite these issues, however, the gold market stands to benefit from the combination of factors that have driven it higher in recent months. Dollar weakness, inflation, easy money policies and more are all bullish factors for gold that could send prices sharply higher from recent levels. Good things come to those who wait, and that saying may never be more true than it is concerning the gold market.

 

Today’s follow through price action would seem to confirm yesterday’s rally in gold and could attract further buying interest. The real test, however, is likely to come in the $1850-$1870 area. This area marks not only previous resistance, but also the market’s 200-day moving average. Some attempted selling may be expected, but the bulls may simply punch through this region like a knife through warm butter. If that is the case, more buyers are likely to flock to the market as resistance is cleared, setting the stage for additional upside gains. The bulls this week have regained control of gold on the daily chart, and the market may again be viewed as a buy the dips asset until proven otherwise.

 

Even long time gold detractor Warren Buffet has suggested that gold may be a worthwhile investment in the current environment. Buffet purchased shares of Barrick gold last summer and sold them in the fourth quarter. He was also recently quoted discussing inflation and the effects it is having on his companies and investments.

A Hot Start

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The gold market is off to a hot start this week with spot prices gaining some $24 and change in mid-day action. Although the market is now at 9-week highs, the yellow metal has not been able to breakout above key resistance in recent weeks. This lack of a breakout could set the stage for more bearish bets on the metal in the weeks ahead and could give the bears momentum.

 

The reflation trade seems to be picking up steam again. Many commodity markets are at or near multi-year highs in price action that could be considered supportive for precious  metals. A weaker dollar, stronger crude oil and declining bond yields are all likely supporting gold today as the bulls look to regain control of the daily chart.

 

The ongoing concerns over inflation and dollar weakness have led some states to pursue gold and silver as legal tender. A dozen states, in fact, have begun the push to legalize the metals for legal tender recognition and that effort could gain further steam if more states join in. The state of Utah has already begun to operationalize this effort, with more states likely to follow in the months ahead. If the metals do become recognized as legal tender, the markets could stand to gain substantially as demand could rise sharply.

 

The gold market is likely suffering currently from competition in other asset classes that have momentum on their side. Bitcoin, copper and stocks are all places investors may be looking to put capital to work currently as their prices have maintained a strong upside bias in recent months. Although gold is still a reliable ,long-term store of value and protector of wealth, the lure of upside may keep investors more interested in momentum plays currently. This could keep gold from staging a major breakout, for now anyway, but the metal will likely get its day in the sun at some point.

 

The CFTC recently reported that hedge funds have increased their bearish bets on gold, as the metal has been unable to break out above the $1800 level. This disappointment may be short-lived, however, as rising inflationary pressures could keep the bulls grinding away and higher metal prices become more likely.

 

If today’s gains hold, the market may see further buying in the sessions ahead as momentum traders and investors look to jump on board again. Given the metal’s close proximity to $1800, however, it will almost certainly take a breakout above this level on a closing basis to attract further buying in the near-term. Today’s upside has put the bulls back into control of the daily chart, and that is a positive for the bulls looking forward.

 

Other markets, including copper and palladium, may hold the key to gold’s fortunes. Copper is near record highs, and palladium is also on the rise, having closed atop the $3000 level for the first time. If these and other markets do see a slowdown or reversal, much of that capital could quickly find its way into the gold market. The environment for higher gold is still very much intact and the market may simply spend some time sideways before moving higher.

Threat of Rising Inflation

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The week ahead may feature some market fireworks as investors get ready for the latest FOMC meeting and statement. No policy changes are expected from the central bank this week, however, markets will closely scrutinize its statements following the decision for any changes in language or outlook.

 

The threat of rising inflation has become an increasingly key topic for markets in recent months. Investors will pay close attention to the Fed this week, looking for any clues as to potential policy changes down the road or rising concern over inflation. Any hints of the Fed beginning to tighten policy could send both stocks and the gold market sharply lower. Markets appear to have gotten quite used to easy money and any removal of the punchbowl by the Fed could put a major dent in investor psychology.

 

In addition to the Fed this week, concerns and optimism over the Covid-19 pandemic may determine market direction. There has been growing optimism in recent weeks as economies heal from the effects of the virus. Several locations have, however, become a major source for concern as the virus continues to spread.The country of India, for example, has become a major area of concern as it grapples with the spread of the virus. If the situation in India and other locations worsens, it may also keep investors on the sidelines or even hitting the sell button. It is unclear how the yellow metal would react to such a scenario, although it seems the metal could climb as risk appetite dwindles.

 

The Fed and its easy policies have fueled more talk of a market bubble that will soon pop. Some analysts have suggested the next major breakdown is likely to occur this year or next. The biggest question appears to be whether it will be of the 30% or 80% variety. With stock valuations now double GDP, the market has reached an arguably overvalued extreme. At some point, sooner or later, that bubble will pop and valuations could come down sharply. In that event, the Fed is likely to try to respond with more of the same. The problem, however, is that the Fed already has the gas pedal to the floor. It is tough to lower interest rates enough to affect the economy when rates are already at zero. The central bank could elect to increase its QE operations, but how much more the Fed can do without destroying any remaining faith in the U.S. Treasury market is unclear. The situation will not be put under control easily, and the sell-off could occur in both stocks and bonds simultaneously. Such a scenario would turn a major sell-off into a full blown meltdown, leaving investors looking for alternative asset classes in which to stash capital. This could be a major catalyst for sharply higher gold prices and could lead to a rapid move for the metal to $5000, $10,000 or beyond.

 

The bulls have been fighting to retake control of the market on the daily chart. The $1800 level seems to still be a key resistance area that must be taken out on a closing basis if gold is to continue its ascent. The bears will likely target the $1700 level on the downside to gain further momentum.