The biggest news for gold this past month is… the price.
The price of gold has been red hot in the month of June. In fact, the precious metal is already up 6% from its May lows near $1,270 per ounce.
Less than nine months ago, markets thought the Fed was going to raise rates this year. After 10 years of a growing economy and rising markets – and rates still near zero – that made sense.
But then trade war worries took hold, and the Fed recognized the risk of a national and global economic slowdown. Now the markets expect the Fed will start cutting rates, rather than raising them. And this could possibly happen soon – and multiple times.
Most other central banks are already taking that route. But the specter of Fed cuts has now caused renewed weakness in the U.S. dollar and lit a fire under gold prices.
In fact, the Fed now admits that “unconventional tools” reserved for crises, like quantitative easing, zero interest rates, and even negative rates may no longer be seen as “unconventional.”
With this kind of backdrop, it’s little surprise the price of gold is running higher…
Conditions Are Perfect for a Gold Price Rally
The gold landscape has changed. Some might say dramatically.
Thanks to the new outlook on interest rates and concerns about recession, gold gained 6% in just the past two weeks.
The first move came on May 30. That’s when U.S. President Donald Trump said the United States would hit Mexico with a 5% tariff on all goods. That’s when gold got the defibrillator.
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Then on May 31, gold topped $1,300 to post its highest close in over seven weeks, thanks to trade tensions.
One thing is certain: Investors’ interest has returned. On June 4, the SPDR Gold Shares ETF (NYSE: GLD) enjoyed its largest one-day inflow of gold in three years, adding 16 metric tons that day alone.
Gold futures even tested the $1,360 level on June 14. And depending how you count or who you ask, that’s the sixth time since 2016 they’ve hit that level.
It’s widely considered that the more attempts at breaking through an overhead resistance level, the bigger and stronger the eventual breakout.
Legendary billionaire trader Paul Tudor Jones just called gold his “favorite trade for the next 12 to 24 months.” Jones said that if gold can push through $1,400 – just $60 higher – then it could blast all the way to $1,700.
He thinks the increasing possibility of Fed easing could be just the catalyst the price of gold needs.
Looking at a long-term chart for gold, it’s easy to see why Tudor Jones has such a lofty target. Actually, it’s this kind of view that gives the clearest perspective.
Have a look…
To be fair, it doesn’t take an expert market technician to see the long-term resistance gold has faced near the $1,400 level. It’s been a major obstacle since 2013.
And it also doesn’t take much explanation to see that the next possible resistance level appears to be around $1,600.
It’s looking like gold has a real shot at breaking out soon. The more times the overhead resistance level of $1,350 to $1,370 is tested, the better the chances of gold breaking through on the next attempt.
And the dollar may be about to lend a helping hand…
The Fed Isn’t the Only Catalyst for the Price of Gold in 2019
Let’s start by looking at a two-year chart.
At first glance, the dollar appears to be holding up quite well, still consolidating high, near its highs of the past two years.
But now, let’s zoom in.
The most recent pullback has the DXY coming off from 98, its highest level in two years.
But also consider that this latest retreat has pulled the DXY back below its 50-day moving average. And given the confirming action in both the relative strength index (RSI) and moving average convergence divergence (MACD), there’s a real possibility for more momentum to drag the dollar even lower.
If the dollar index drops below its 200-day moving average, currently around 96.25, then gold could easily blast higher, past my target of $1,400 for this year.
As for gold, let’s zoom in there too.
Needless to say, the action here is looking quite bullish. The recent jump from $1,270 to $1,345 came on lots of buying volume. This has pulled up the 200-day moving average and reversed the 50-day’s recent downtrend.
Both the RSI and MACD momentum indicators are confirming this move, which suggests there could be more ahead. And while the MACD looks stretched right now, the RSI looks like it has room to run before becoming overbought. So on a technical basis, conditions look favorable for further upside.
Looking at gold stocks through the GDX is even more bullish.
After consolidating low around its 200-day moving average, the GDX blasted higher on May 31, then just kept climbing.
This move too was validated by the RSI and MACD. Actually, both of these started moving higher before the GDX itself, suggesting there may be an upside move ahead. In hindsight, that turned out to be the case. The GDX has just closed above its February and March highs, establishing a new high for this year – another bullish indication for gold stocks.
And looking at the gold-stocks-to-gold ratio, we can glean more positive news.
Although we don’t have a new high with this ratio, gold stocks clearly outpaced gold itself in this latest move higher since late May.
And the Gold Miners Bullish Percent Index is acting really well too.
The surge from below 30 up to 40 was without any pause, and the jump further to 52 was almost the same. Gold stocks outpacing gold is a very encouraging sign for gold itself.
Now, let’s review my recommendations from January.
The DB Gold Double Long Exchange-Traded Notes (NYSE: DGP) are down about 14%, having clawed back somewhat from last month. Stay long DGP or buy in stages if you don’t yet own it.
The VanEck Vectors Junior Gold Miners ETF (NYSE: GDXJ) has bounced back strongly with gold’s reversal, and is now up by 3.13% since mid-January. Here too, stay long or average in if you don’t own it.
I’m not alone in my expectation for $1,400 gold in 2019.
Scotiabank commodity strategist Nicky Shiels recently noted, “We feel we are in a good spot for the next commodity cycle. Gold is perking up this year, trying to break out of its four-year cycle. It is viewed generally as a hedge to the dollar alongside to being a hedge to inflationary policies and geopolitical risks. I believe gold has a chance of reaching $1,400 this year.”
That’s just $60 higher from $1,340. In my view, especially if the Fed cuts rates in July, we could see $1,400 as soon as Q3.
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