Gold Has Room To Move Higher – Technical Trader
Anna Golubova Anna Golubova
Tuesday August 29, 2017 13:44
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Gold Has Room To Move Higher – Technical Trader
(Kitco News) – As gold prices continue to trade firmly above $1,300, one technical trader says the precious metal has room to go higher as charts point to more gains.
“We’re seeing a pretty impressive test of the recent range highs, and I think that based on what the macro situation looks like, gold should push higher,” Todd Gordon, founder of the TradingAnalysis.com, told CNBC.
For his analysis, Gordon compared the gold-tracking exchange-traded fund SPDR GLD to that of the ETF that tracks long-term bonds (TLT).
The technical trader pointed out that even though both traded “in a fairly tight correlation” in 2017, a gap developed in July. GLD’s 8% rise since July has it beating the TLT, Gordon said.
“What we see here is TLT diverging just a bit, meaning we are approaching those June highs but have not broken out where GLD looks poised to continue on through,” noted Gordon. “So as both markets are pressing higher, that signifies a Fed that is perhaps on hold longer than we’d expect.”
A sharp decline in the U.S. dollar has been supporting gold prices in what is the usual inverse relationship between the two. And, according to Gordon, a more dovish Federal Reserve will continue this trend.
A key level to watch for Gordon on the GLD chart is around $126, which he described as a “significantly technical area.”
On Tuesday, GLD moved higher in tandem with gold prices, last trading up 0.18% at $124.92.
“Gordon is buying the September 123-strike call and pairing that with the sale of the September monthly 126-strike calls for a total cost of $1.00, or $100 per options spread. That $100 will be lost if GLD closes below $123 on Sept. 15 expiration,” CNBC reported.
“The trade breaks even at $124, which is the strike price of the lower call plus the per-share cost of the trade. And if the GLD closes above $126 on Sept. 15 expiration, Gordon will enjoy his maximum reward of $200.”
Overall, GLD had a great run in 2017, rising 13% year to date and hitting levels not seen since the U.S. elections last year.
(Kitco News) – “You do have enough here to argue that gold can go higher.”
These were the words of veteran technical analyst Louise Yamada as she appeared on CNBC’s Futures Now Tuesday, when the metal rallied to levels last seen right after the U.S. presidential election last year.
Indeed, there are many factors working in gold’s favor right now.
For one, North Korea launched a missile over Japan’s airspace overnight, which pushed gold prices to multi-month highs. Likewise, the U.S. dollar is under pressure and investors continue to question the Federal Reserve’s ability to tighten monetary policy as well as President Trump’s reform plans – more positives for gold.
But what’s really catching Yamada’s attention are equity markets, which she said look “fragile.”
“What’s interesting about today’s action is that [gold]’s moving inversely to the [stock] market,” the managing director of Louise Yamada Technical Research Advisors said.
“If gold continues up here, it’s possible that we move more into a bit of a corrective trend in equities. There’s a lot here suggesting that equities are looking fragile under the surface and it would be logical to see equities pull back a little as we get a rally in gold.”
Stock markets were under pressure as gold prices broke out Tuesday. However, after clocking in an 11-month high, the metal has cooled off as equity markets recovered. December Comex gold futures lost recent daily gains and were heading towards a negative close, last at $1,312.10 an ounce, down 0.24% on the day. Meanwhile, the Dow Industrial Average and the S&P 500 moved in the green, last at 21,861.26 and 2,448.01, respectively.
However, the former Citigroup analyst isn’t giving up on gold just yet, noting that the metal is now “breaking out.”
“I think that gold can go higher. It could possibly get to the next level at $1,380,” she said. “$1,400 would be key resistance because that goes all the way back to 2014.”
In the past, I’ve been a pretty vocal critic of the barbarous relic, but I want to clear up a few things. I am not anti-gold, I have no view on its fundamentals or what it might do in the event that the economy does X, Y, or Z. What I am vehemently against are the people who think gold is the solution for everything, particularly everything bad that can happen. These charlatans are financial predators of the highest order, preying on the financially illiterate and selling promises they can’t deliver.
“Worried about an economic meltdown? Buy gold.”
“Is the Fed’s printing press going to make fiat currency worthless? Buy gold”
“Is geopolitical risk keeping you up at night? Buy gold.”
Barring a steep correction between today and the close on Thursday, I will buy GLD in my Roth IRA. The purchase will represent 10% of my liquid net worth. I’m not buying gold for any other reason than it is going up. Let me explain.
I’ve shared this admittedly cherry-picked chart in the past to support my view (which hasn’t changed) that gold is a great trading vehicle, but it is not a great long-term investment. In 1980, gold and the Dow were both 800. Today, the Dow is almost 17x the price of Gold, with dividends its 79x!
Prior to 1980, gold had wrapped up what Peter Bernstein called an “extraordinary episode in financial history.” From 1968-1980, it gained 30% a year. For context, not that a 30% CAGR for 12 years needs any, but stocks have never witnessed anything like this. In 1980, following this incredible performance, there was $1.6 trillion invested in gold. The market cap of all U.S. stocks was $1.4 trillion!
Back to today…
…Gold is poised to close above its 12-month moving average for the second straight month. Going back to 1970, the average monthly return for gold following a close above the 12-month moving average is 1.47%. The average monthly return following a close below the 12-month moving average is -0.15%.
If you used the simplest of trend-following methods, investing in gold when it was above its 12-month moving average, and going to cash when it is below, the results would have been far better than just buying and holding gold.
The chart below shows when you would have been invested in gold and when you would have been out. Granted, prior to GLD, this could only have been done with futures contracts, or gold bullion, with the former adding a degree of leverage that I would not have been comfortable with, and the latter adding a degree of paranoia that also would have made me uncomfortable.
The chart below shows the hypothetical results from each of the 30 exits following an entry (going back to 1970). Using these rules would have resulted in a loss two-thirds of the time. But as you can see, the losses have been relatively shallow, not exceeding 10%, while the gains have been good to extraordinary.
I like to say that the worst ten year period for any backtest is the next ten years, but I think that this simple trend following rule should continue to be effective in the future. The reason why trend following works with gold is because gold doesn’t trade on fundamentals, it trades on sentiment and emotion, which looks something like this.
I’m violating my own rules by talking about an investment publicly and I’ll admit that this is driven in part to protect my fragile ego. I want to show that I’m intellectually flexible, and that the trash I’ve talked about gold was targeted at the charlatans pumping it and not the asset itself. By following rules, however, I can eliminate the ego that is attached to public pronouncements. I view this purchase as a lottery ticket, with better odds. It has negative expected returns, but if it ends up in the black, it should be solidly gold.
Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.
Now go talk about it.
Heightened risk appetite in the marketplace put gold prices under pressure Tuesday, but one analyst says all the uncertainty should continue to support the metal.
“Regardless of the short-term losses, the yellow metal remains heavily supported by geopolitical risk and political drama in Washington,” noted Lukman Otunuga, market analysts for FXTM, in a report Tuesday.
The gold market saw mild profit-taking as markets await the Jackson Hole Economic Policy Symposium scheduled later this week. Both Federal Reserve Chair Janet Yellen and European Central Bank president Mario Draghi are set to speak at the event on Friday. December Comex gold futures last traded down 0.37% at $1,291.90 an ounce.
However, the London-based analyst remains optimistic, noting that gold bulls still have an edge.
“There is still a lingering air of caution ahead of the Jackson Hole conference later this week and this should empower gold bulls,” he said.
“From a technical standpoint, the yellow metal is bullish on the daily charts, as there have been consistently higher highs and higher lows.”
The bulls remain in control above $1,283 an ounce, Otunuga continued, adding that a break above $1,293 would open the metal’s path towards $1,300.
(Kitco News) – Gold prices were ending the U.S. day session moderately lower Tuesday. Some mild profit-taking pressure was featured after recent price gains that saw gold hit a multi-month high last week. December Comex gold was last down $5.10 an ounce at $1,291.60. September Comex silver was last up $0.01 at $17.025 an ounce.
World stock markets were mostly up Tuesday and U.S. stock indexes were solidly higher in early-afternoon action. The gains in world stock markets were also a daily negative for the safe-haven gold market.
The U.S. dollar index was higher Tuesday, which was also a daily bearish element for the precious metals markets. The greenback has been trending higher during the month of August, but in a choppy fashion. Meantime, the other outside market saw Nymex crude oil futures are firmer. Trading in oil has also been choppy recently.
The highlight of the trading week is the annual central bankers meeting held in Jackson Hole, Wyoming, Thursday through Saturday. Highlights of central bank speakers from around the world include Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi. The marketplace will closely examine the Jackson Hole speeches for clues on future monetary policy moves by the world’s major central banks. In recent years the Jackson Hole central bankers confab has significantly moved the markets.
Early this week has seen a light U.S. economic data slate.
Live 24 hours gold chart [Kitco Inc.]
Technically, December gold futures prices closed near mid-range today. Prices Monday closed at a 2.5-month high close. The gold bulls still have the solid overall near-term technical advantage. Prices are in a steep six-week-old uptrend on the daily bar chart. Gold bulls’ next upside near-term price breakout objective is to produce a close above solid technical resistance at this year’s high of $1,307.00. Bears’ next near-term downside price breakout objective is pushing prices below solid technical support at $1,272.70. First resistance is seen at $1,300.00 and then at $1,307.00. First support is seen at this week’s low of $1,286.20 and then at $1,280.00. Wyckoff’s Market Rating: 7.0
Live 24 hours silver chart [ Kitco Inc. ]
September silver futures prices closed near mid-range today. The silver bulls have the overall near-term technical advantage. Prices hit a nine-week high last Friday and are in a six-week-old uptrend on the daily bar chart. Silver bulls’ next upside price breakout objective is closing prices above solid technical resistance at $18.00 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at the August low of $16.56. First resistance is seen at last week’s high of $17.32 and then at $17.50. Next support is seen at this week’s low of $16.83 and then at $16.56. Wyckoff’s Market Rating: 6.0.
September N.Y. copper closed up 70 points at 298.75 cents today. Prices closed near mid-range and hit a three-year high today. The copper bulls have the solid overall near-term technical advantage. Prices are in a three-month-old uptrend on the daily bar chart. Copper bulls’ next upside price objective is pushing and closing prices above solid technical resistance at 315.00 cents. The next downside price objective for the bears is closing prices below solid technical support at the August low of 286.00 cents. First resistance is seen at today’s high of 301.45 cents and then at 305.00 cents. First support is seen at today’s low of 296.70 cents and then at this week’s low of 293.05 cents. Wyckoff’s Market Rating: 8.5.
Unresolved tensions between the U.S. and North Korea are still very much on the table and can boost gold prices even further, according to a recent Capital Economics report.
“Until there is some certainty as to how the current situation between the U.S. and North Korea will evolve, we think that gold prices are likely to remain well supported and could even rise above $1,350 per ounce, which hasn’t been breached since the Brexit referendum last year,” Simona Gambarini, the U.K.-based research firm’s commodity economist, said Tuesday.
Yet, if the conflict should ever develop into “a full-blown war,” then gold will likely see “some profit-taking,” Gambarini added.
And, in case the U.S.-North Korea conflict simply fizzles out, the focus will shift to the Federal Reserve and its plans to reduce its balance sheet and tighten monetary policy further.
“If Trump’s threats prove to be nothing more than inflammatory rhetoric – as on previous occasions – we would not be surprised to see the gold price retreat as the focus of investors returns to Fed tightening,” the research note said.
In general, increased geopolitical risk in recent years have supported commodities like gold, as the yellow metal offers “the best protection for investors,” Gambarini said. “Over the past 40 odd years, military conflicts – particularly those involving the U.S. – have on average been associated with the largest gains.”
In order to compile its research, Capital Economics analyzed a total of 26 events since 1985, including instances of political tension, military conflicts and acts of terror.
One of the main findings was that gold and oil saw the biggest gains from geopolitical instabilities out of all the commodities, with U.S.-focused events triggering the biggest jumps in prices, according to the report.
“Over the past forty odd years, the price of gold has on average risen by 4.1% in the six months prior to a conflict turning into a full-blown war. However, it barely moved in the months following the event. This makes sense as gold thrives in periods of elevated uncertainty and the start of an armed conflict partly erases that,” the bank’s economists wrote.