Gold’s stealth rally
12/20/18

●Yesterday gold reached highest price since July

●Market has been climbing slowly since August low

●Stock-market turmoil may support gold prices


Given it’s lagged both platinum and palladium in 2018—and spent the middle of the year in an outright selloff—it’s fair to ask why anyone should care much about gold right now.

C’mon. First, everyone eventually starts thinking about gold during times of market turmoil. Second, since dropping below $1,200/ounce in August, gold has gone on its longest, if not its strongest, up move in more than year.

February gold futures (GCG9), 7/3/17–12/19/18. February gold futures (GCG9) price chart. Trend reversal or just a bounce?

Source: Power E*TRADE


Yesterday February gold futures (GCG9) topped $1,260/ounce, and while that’s only a 5.7% gain since October 8, it was enough to push the yellow metal to its highest level since July. And let’s not forget what the stock market has done since early October.

And, after having fallen off the radar of pretty much everyone except the most hardcore gold bugs, the metal has been getting some renewed interest. A Bloomberg Intelligence analyst, for example, recently argued that, in addition to the stock market volatility factor, gold could get additional bullish tailwinds from a declining US dollar in the coming year.1

Wells Fargo noted the tendency of investors to look for “insurance” when the stock market drops 10–15%.2 Even with the S&P 500 (SPX) up more than 1% yesterday morning, it was still down more than 12% from its early October high.

The key thing to remember about gold is that, when you analyze its history and crunch the numbers, everyone’s favorite precious metal tends not to live up to its reputation as an inflation hedge or store of value.

What gold does sometimes do is jump when people are freaking out about financial calamity: Take a look at what it did starting in October 2008, which was the beginning of the last leg of the gold bull market that began in 2001 and peaked in 2011. Since then gold has mostly wandered in the desert, which is also what it did for around 20 years before that bull market started.

February gold futures (GCG9), 5/25/18–12/19/18. February gold futures (GCG9) price chart. Holding higher lows.

Source: Power E*TRADE


Getting back to the present, the shorter-term chart above shows that gold has banged out a series of higher swing highs and lows over the past several months. Buying pullbacks in gold was definitely a losing approach in the first half of the year, but the market’s ability to hold successively higher lows every month since September may signal a real shift has occurred.

As always, though, renewed confidence in equity land could cause traders to dump gold like the heavy metal it is.

The point is not that gold could suddenly soar to all-time highs in the near term, but that some traders may think it has the potential to continue to rally—perhaps toward the upper end of its long-term trading range (around $1,375)—in which case patient traders who look for pullbacks may find themselves on the right side of an uptrend in a market that hasn’t trended higher in quite a while.

Today’s numbers (all times ET): Leading Indicators (10:00 a.m.).

Today’s earnings include: Accenture (ACN), Conagra (CAG), Walgreens Boots Alliance (WBA), Cintas (CTAS), NIKE (NKE).

 

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1 Kitco News. Signals Show Great Upside For Gold In 2019—Bloomberg Intelligence. 12/17/18.

2 CNBC.com. Wells Fargo turns positive on gold, here’s how the firm sees it going. 11/14/18.