Festive price breakout heralds a glittering 2020 for Gold 1 OZ (XAU=X)
While Western investors revelled in the festive season, the price of gold made a decisive breakout from the trading range that stopped its summer advance.
This should mean an early resumption of the bull market for the yellow metal in new year, albeit not necessarily in a straight line.
Remember how the gold price made a similar breakout in May when prices soared over the summer? That was one of my best calls for 2019.
From December 23 to 26, gold leapt past the $1,500 an ounce post, and silver prices jumped three times faster to $18 an ounce. The popular junior miner exchange-traded funds, GDXJ for gold and SILJ for silver, were up by 7 and 12 per cent, respectively. Gold firmed again to $1,510 on Friday.
And this at the end of the year, when most precious metals’ analysts expect a bit of profit and tax loss-taking. Instead, those shorting the precious metals were forced to cover their positions, adding to the upward price impetus.
That is a nice way to almost close a standout year for precious metals – the best since 2010 – with gold up 18 per cent and silver 16 per cent, albeit trailing the S&P 500 Index up 29 per cent (though do not forget it was down 19.8 per cent last December).
Beneath the surface there are so many good reasons to hold gold and silver for 2020 that perhaps this jump should not have come as such a surprise.
First, an increasing band of economists and forecasters are hailing a top in the US dollar. Three Federal Reserve rate cuts in 2019 were hardly supportive of the greenback, and it is clear enough that any stock market weakness on Wall Street will be met with further cuts. Gold and the dollar usually move in opposite directions.
Second, precious metals offer value in a world full of overpriced assets. Gold is still around 20 per cent off its 2011 high, silver is worth less than a third of the price it reached that year.
Thirdly, the classic investment adviser approach to asset management is diversification. With US stocks at a record in terms of their total market capitalisation compared to gross domestic product – Warren Buffett’s favourite overvaluation yardstick – there has never been a better time to diversify.
Fourth, while physical gold and silver prices corrected by 10 to 15 per cent from the start of September after their summer surge, the price of shares of precious metal producers did not show as much weakness. This is the opposite of what should happen and therefore a bullish indicator.
Fifth, a whole host of very solid economic indicators point to a slowing global economy. Global car sales this year are expected to drop by 3.1 million, the biggest crash since 2008, and the International Energy Agency says 2019 growth in oil demand will be the lowest in three years. This makes gold a safe haven.
Sixth, a barely reported crisis in the global credit refinancing, or repo market, this month has caused a massive increase in credit from the Fed to avoid the sort of stock market crash we saw in December 2018. This is comparable to the credit surge at the New Year of 2000 that some say tripped the dot-com crash, and started the 2000s gold bull market.
Seventh, gold’s main speculative rival of recent years, the cryptocurrencies, have lost a lot of credibility.
So how do readers actually go about investing in what could be the bonanza of 2020?
Gold booms go in several phases. Typically in the first phase, gold outperforms silver, and that happened last summer. In the next leg up silver outperforms gold by two-to-three times, although this can be a very volatile performance.
The lesson therefore would be to consider spreading your risk and adding some silver in your asset allocation. If you are an online brokerage investor then low-cost ETFs for the metals include BAR for gold, and Sprott Physical Silver Trust (PSLV).
Then you should weigh up whether you are prepared to accept the added risk and volatility for what should be the higher gains in the shares of precious metal producers. Their profits rise quicker than the price of the metals they produce.
After many bad experiences, I am reluctant to name specific stocks. What seems to work better for most people is to spread the risk by buying a basket of 25 to 30 of these shares held in an ETF.
Then if one company’s mine turns out to be a dud or the management incompetent, it does not affect your overall investment much. For large gold companies, the GDX is the industry standard ETF and GDXJ for smaller companies that tend to come back into fashion near the top of the market; and SILJ is the silver mining junior ETF.
Overall, the bias in prices is: Upwards.
The projected upper bound is: 1,535.98.
The projected lower bound is: 1,485.68.
The projected closing price is: 1,510.83.
A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 6 white candles and 3 black candles for a net of 3 white candles. During the past 50 bars, there have been 27 white candles and 22 black candles for a net of 5 white candles.
A bearish harami occurred (where the current small black body is contained within an unusually large white body). During an uptrend (which appears to be the case with PREC.M.XAU=) this pattern implies an end to the rally as the bulls appear to have exhausted themselves.
During a downtrend the bearish harami pattern is bullish as the bulls appear to be gaining strength as the bears weaken.
A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 92.7959. This is an overbought reading. However, a signal is not generated until the Oscillator crosses below 80 The last signal was a buy 12 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 70.36. This is where it usually tops. The RSI usually forms tops and bottoms before the underlying security. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 87 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 163.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. The last signal was a sell 15 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 20 period(s) ago.
Rex Takasugi – TD Profile
PREC.M.XAU= closed down -0.881 at 1,510.417. Volume was -0% below average (neutral) and Bollinger Bands were 2% wider than normal.
Open High Low Close Volume___
Short Term: Overbought
Intermediate Term: Bullish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 1,488.88 1,478.25 1,418.59
Volatility: 7 11 14
Volume: 0 0 0
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
PREC.M.XAU= is currently 6.5% above its 200-period moving average and is in an upward trend. Volatility is relatively normal as compared to the average volatility over the last 10 periods. Our volume indicators reflect very strong flows of volume into XAU= (bullish). Our trend forecasting oscillators are currently bullish on XAU= and have had this outlook for the last 9 periods. Our momentum oscillator is currently indicating that XAU= is currently in an overbought condition.