Transcript below:
Let’s get technical first. The historic price move in gold is noted. Yet, the subsequent 18-month price consolidation has likely frustrated investors especially considering the efforts of central bankers around the globe to devalue their country’s currencies. I am sure there is more than one investor wondering why gold isn’t higher. But it isn’t, and in fact, price is at the lower part of its range and right at a very important support level. Why is this level so important you might ask? A close below 3 key pivot points would in all likelihood represent the end of the bull market in gold. Technically, gold is just hanging on.
Fundamentally, the dynamics for gold appreciation have been negative for nearly 2 months. Essentially, rising Treasury yields have historically been a headwind for the precious metal. The lone exception has been since 2000, which was the start of the bull market in gold. During this time, “buying the dip” has been the best strategy regardless of fundamentals. Bull markets have a way of making buy and hold investors look like geniuses, and this one in gold has been no exception.
As long gold is above the 3 most recent key pivot points, the bull market is intact. Buying the dip, will work until it doesn’t. This is another way of saying that a failure to hold support at these levels represents a price failure and in all likelihood the start of a bear market in gold. Furthermore, this would make sense as the difference between bull and bear markets is what I call a regime change. That is, what used to be no longer exists, and in this case, the fundamentals for gold mattered less over the past 10 years, but maybe at this juncture, they are asserting themselves again. Only time will tell.
In the final analysis, gold is in a bull market; it is at support. Despite the questionable fundamental picture, I believe this represents a good buying opportunity as price sits at support. A weekly close below support levels at 1592 would be reason to be cautious on gold. The big question remains: will bull market dynamics reassert themselves for gold or will this time represent a regime change ?
Guy Lerner has beaten the S&P 500 for 21-straight years. See his model portfolio today!