As you know gold dropped down through 1300 two weeks ago. That gave gold bulls a mild heart attack because the story for gold rising includes a little bit about “rising.” Not “falling.” A touch of a difference there. And 1300 is a key pivot point for gold; it can’t go up without staying above 1300. (just to drive the point home)
But the world is an ephemeral place, where most things don’t last forever. Sure enough, gold rose back up through 1300 in late afternoon New York trading as the US Dollar faded, and it’s up to 1305 after overnight international trading.
Some of this is doubtless due to a slight drop in the USD following various national news items. But international uncertainty like Brexit news and China actually reporting adding to their gold reserves again in February doubtless helped drive up interest in gold too. As long-time readers know, China does not often report additions to their gold reserves, although “following the money” leads one to believe they do it often and have a lot more in their stockpile than they admit.
Two interesting facts caught your Gold Enthusiast’s eye. The first is that gold has risen about 4% in the past three months while the US Dollar has only dropped about 0.5%. That seems to hint that gold is gaining in perceived value in trader and investor eyes, as it should only have gained 0.5% if it was locked in an unleveraged inverse relationship with local currency, which is the common pure-economic-price view.
Second is that whenever we see a day like yesterday, gold rises a touch more than the Dollar falls. Yet on other days, it’s pretty much a 1:-1 relationship. Something to think about… and pay attention to.
On balance, the basic story for economic growth remains decent – there are a large number of countries trying to raise their standard of living, which means decent sales for producers. And of course there’s ever-increasing world population – more people means more demand. More generally means more.
But at the same time, there is still a dark economic cloud overhead, spelled d-e-b-t. Will Modern Monetary Theory (MMT) survive its first real test? Can countries just print money to get themselves out of trouble, like the US did through the Fed’s QE programs? Or will Austrian economic theory prevail, and we’ll see at least a mild depression in the next few years as dollar hangover sets in?
Whichever way it goes, let’s try to trade smart through it and end up ahead in either case. Let us know what you think will happen in the Comments below.
The Gold Enthusiast
DISCLAIMER: The author holds no positions in any mentioned securities. He is long the gold mining sector with small, non-market-moving positions in NUGT, JNUG, a few junior mining stocks, and some covered calls in NUGT, and may trade any of these in the next 48 hours.
About the Author: Mike Hammer
For 30-plus years, Mike Hammer has been an ardent follower, and often-times trader, of gold and silver. With his own money, he began trading in ‘86 and has seen the market at its highest highs and lowest lows, which includes the Black Monday Crash in ‘87, the Crash of ‘08, and the Flash Crash of 2010. Throughout all of this, he’s been on the great side of winning, and sometimes, the hard side of losing. For the past eight years, he’s mentored others about the fine art of trading stocks and ETFs at the Adam Mesh Trading GroupMore...