From a technical perspective gold prices have been undeniably bullish so far this year with a strong break-out last week. The good news is the trend is solid enough to start bending the 200-day moving average in a positive direction and the 50-day moving average has now crossed above the 200-day; a very bullish sign.
Ironically, gold’s strong price move has thrown technical analysis out of kilter as we undergo a brief period of consolidation and establish the new trend. As it crossed above $1,250 an ounce it was inevitable some investors would short-sightedly cash out, which may make some days ahead a little volatile. But the long term for gold is looking bright, even as hopes for the global economy dim.
China remains on a massive gold-buying spree, with imports up 700% since 2010. What’s interesting, not to say suspicious, is that by some estimates China’s consuming nearly forty percent of the gold mined around the globe, yet government figures show only a minor increase in their reserves. Right now it’s hard to separate private demand from government stockpiling but it’s safe to say China’s amassing huge amounts of gold, which is an overall positive for prices.
Investors Leaning Toward Protecting Wealth
It’s finally starting to sink in that two of the new realities of our connected global economy are higher levels of instability and volatility. Events in far-off places can have a devastating impact on your investment returns, even if your local economy is healthy. This new “out of the blue” character of sudden, sharp losses puts investors out of sorts and lowers the market’s overall appetite for risk. That’s especially true for wealth investors, who may decide the chase for a margin just isn’t worth the headache. As a result, investment priorities are realigning in favor of wealth preservation, with a consequent shift toward hard or tangible assets, including real estate and especially liquid hard assets like high quality physical gold and silver.
There’s a general consensus in the financial world that the Fed waited too long to raise interest rates and then did so at the worst possible time. Letting the dollar continue to fly high against other world currencies is hurting U.S. business interests abroad and keeping downward pressure on commodity prices. So far the Fed hasn’t shown any signs of backing off planned interest rate hikes but pressure to ease off is building by the day. Then again, they may go to negative interest. You never can tell with the Fed, except they’ll be a day late, and you’ll be a dollar short.
In the short term the recent spike in the gold price will likely spur some to cash out, although where they plan to put that cash remains problematic – if they want to keep it. Nevertheless, we’ll see some volatility in the days ahead. Such consolidation is necessary to establish a new normal range for prices and will likely take a few days to a few weeks to stabilize.
The good news is all the technicals are pointing to stronger gold prices in the days ahead.