With all the talk about trade wars, economic slowdown in Europe and China, the flattening of the bond curve, you would think gold would be making new highs. Instead we just finished testing the December of low of 1236. One may ask “what is going on here”? Not an hour goes by without mentioning the “Trade Wars”, flattening yield curves, issues with European banks, slowing economic expansion and a debt to GDP ratio headed above 300% by 2022 in China. Yet the stock market is holding steady, the dollar is strengthening and gold is testing the December 2018 low.
You would think with all the doom and gloom being fed to us on a daily basis, gold would be booming, but it is doing just the opposite. This is why we repeat over and over; follow the money not the fake news. Aside from the news, unemployment is at historic lows with more jobs openings then there are people to fill them. The economy is simply firing on all cylinders in the US creating positive sentiment. Sentiment moves markets not news and fundamentals.
Since I have been posting on gold, going back to February, we were looking for a pullback to the 1265-1285 area before a rally to our final summer target of 1400-1450. We pulled back and though it was deeper than we expected, this does not change our longer term view, however, we may have to revise our timeline.
After a few weeks of testing the lower support of the trend channel, gold capitulated where it found support at the longer term support line. IF gold takes out the Dec 17 low we will look for gold to find support between 1195 and 1224 with 1200 being a significant psychological level. If 1200 fails 1170 would be the next likely level to look for a bullish reversal.
The formation of a pinbar on the weekly may signal that gold has found support and will start to recover off a failed low. Initial resistance is found at 1287 which is the 0.382 retrace of the overall bearish swing starting in April. If gold can break through the 1287 level, 1318 would be our first target level and we can look for a late summer rally toward 1400 or the lower end of our target.
As long as the economy is firing on all cylinders, people are employed, and the dollar continues to strengthen, investor sentiment will clearly favor stocks over gold.
As Marc mentioned in his S&P article, the stock market still has some room to run, but this is NOT the time to be aggressively buying growth stocks. We are also not advocating selling your long term holdings or discontinuing dollar cost average investing.
With the economy as strong as it is, gold is clearly out of favor with investors as they look for alpha in growth stocks. Though there is never a bad time to buy metals, when they are out of favor it makes them that more attractive to a stacker. These dips are opportunities to increase your long term inventory.