We mentioned last week that before gold can move higher, the weak hands must be relieved of their money. Money moves from weak to strong hands in all markets. Gold is no different. Once Goldman Sach’s came out with their 1450 gold target it was obvious the powers that be, intended on weeding out the weak hands. I remember back in 2015 when Goldman’s Curry issued a “multi year bear market” for gold around 1100, with a target below 1000. One year later gold was at 1350. Keep in mind after issuing the call for sub 1000 gold Goldman, along with HSBC, stacked up on 7 tones of gold combined. Nicely done guys.
This time is no different as Goldman issued about two weeks ago, “bullish on gold with a 1450 target”. Talk about taking the herd to slaughter! We have been mentioning since February and March that we likely retest the 1265-1285 before moving higher towards our 1450 target. A few months later we are now testing this zone. Simply stated, market sentiment is such that gold is not ready to rally.
Gold has slowly trended higher, consolidating and pulling back to the overall trend line, then rallying to the 1360 level. There have been a sequence of higher highs and lower lows, and as long as the 1265-1285 support zone holds we should resume the slow rally back to the 1360 level. This time we likely break the 1365 level and rally towards our 1400-1450 target. This has been following the path we expected, but we can not ignore the alternate side of the trade.
The bears were able to push gold through the 1305 level and are now testing the top of the initial support zone. This is an area to look for a bullish reversal and potential trade setup. A break of the 1265 area brings into play a critical level to hold at 1236. There is a support level that is right above this at 1246 which may provide a preliminary indicator we area headed lower if this fails. Failure for the bulls to hold this level or above 1236 negates the current wave count and it is likely to see a deeper selloff as low 1042.
We are still a long way from Dixie, and at this phase in the economic cycle it is not likely we get there, but we can not discount these levels if 1236 is broken.
Silver is still the better value here over gold. The gold to silver ratio is holding tight to 80 which is at all time high levels. Gold is king and will always be. Sorry Bitcoin, gold is not subject to solar flares.
If you are a new investor I recommend starting with silver. We all start with silver. I remember collecting silver dollars and half dollars as a kid. Going to the bank and buying rolls of quarters pulling out the silver ones, add back some clad and back to the bank. We did it as kids to collect. Though times have changed collecting is still a hobby, and it’s also an investment.
Disclosure: Long Physical Gold, silver, GDX – Short GDX 18May 23 calls.