ANALYSIS: An Early Call on Gold?

Is there an early call on Gold? Stocks are rising but there are voices of caution that see opportunity in gold. Among the most prominent voices is Thomas Kaplan, billionaire chairman of the investment fund Electrum Group. Globally, there has been a massive accumulation of debt. So Kaplan argues that investors would make money on gold even if the world is doing well, but “won’t get carried out on a stretcher if any of the black swans show themselves”. Given the parlous state of gold exploration and reserves, the normative supply/ demand equilibrium level of gold is $3,000 to $5,000 an ounce. A strong argument for Kaplan to see in gold the best risk/reward ratio of any asset class.

 5-year weekly chart of GLD and USD
5-year weekly chart of GLD and USD

GLD, USD and Volatile Times

From a shorter-term perspective, Gold has been “trading like a currency with its pathway most likely defined by strength or weakness” in the U.S. Dollar, says Matt Osborne, CIS at Altegris. Gold has managed to rise despite three Fed rate hikes in the past year, and another three expected in 2018. And of course, Gold acts as an insurance against volatile times. Risks in the market are the geopolitical situation in North Korea, which could evolve quickly into an armed conflict. China’s economy could falter and if the U.S. economy shows enough signs of weakness, the Fed could postpone its rate increase. There is also Jerome Powell, the next Fed chief, and U.S. president Trump, who seems to follow a policy agenda of undoing everything the previous president did.

Bottom Formation About to Finish

Gold is up around 11% this year, trying to complete a five-year bottom formation, which started in 2013. The Gold ETF (GLD) has still some room until it runs into its long-term resistance at $128-130. The price breaking through this level could indicate the next leg up for the precious metal.

Author: ReturnBoost

Active Momentum Investing

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