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Monday, September 20, 2021

Gold is in a New Bull Market


The price of gold has gained 10% to $1412.35 YTD, and my work projects the precious Yellow metal will move much higher from current marks as it enters this new Bull market.

The fundamentals and technicals are aligned for gold to maintain its upward trend in the months ahead.

Gold stocks are usually stock market laggards when the outlook for the US economy and the USD is strong. But doubts about the outlook and a Dovish Fed helped fuel a gold price surge in Y 2019, sparking a lots of interest in gold investing. I called the initial move in this column in January, it moved up, consolidated and broke out in May.

Institutional investors like gold as a hedge against uncertain times, as gold has proved its ability to hold value over centuries.

Gold stocks and gold ETFs are the simplest way for individual investors to bet on a rising gold price. Investing in gold stocks can be a riskier, but also potentially more rewarding, way of investing in the precious Yellow metal.

Investors have 3 major options. They can buy gold stocks individually.

They can buy an ETF that tracks the gold-mining stock sector, such as the VanEck Vectors Gold Miners ETF (GDX). Finally, they can get direct exposure to the precious metal itself via the SPDR Gold Shares ETF(GLD).

HeffX-LTN’s overall technical outlook for GLD is Bullish to Very Bullish with the Key indicators flashing Very Bullish in here.

Adjusted for inflation, the price of gold hit an all-time peak in early Y 1980 amid double-digit inflation in the US.

Unadjusted for inflation, the gold price peak above $1,900 oz came in August 2011. That came in the wake of the great financial crisis.

The Fed was engaged in its 2nd round of QE, the 2-yr Treasury yield hit historic lows below 0.2%, and .DXY near historic lows after a fight over the debt ceiling nearly led to a US debt default.

The gold price low of recent decades was just above $250 oz in Y 1999. That came as the US economy was still enjoying the upside of the dot-com bubble and productivity was booming.

The common thread linking gold price highs and lows seems to be real interest rates. In Y 1980 and again in Y 2011, real interest rates were negative, with 2-yr Treasury yields well below the rate of inflation.

In Y 1999, as the price of gold slumped, real interest rates were on the rise. The Fed was in a rate-hiking cycle, raising its benchmark rate north of 5%, well above roughly 2% inflation.

The Big A: Why do real interest rates matter so much for the price of gold?

The Big A: Gold is a store of value, but holding it comes with an opportunity cost. That money could instead be invested safely in Treasuries, for example. If real interest rates are attractive, holding gold is much less attractive. When real interest rates turn negative, holding gold is usually a winner.

But real interest rates are far from the only determinant of the price of gold. The supply/demand balance is among other important factors.

So, no matter what your view of whether the price of gold is a good bet, it makes sense to subject investment decisions in gold stocks or an ETF tracking gold or gold stocks, to the same diligent process as regular stock buys. That means waiting for a good buy point and a good buy signal.

Pay attention, gold is in a new Bull market and the prices will run a lot higher this year.

Have a terrific weekend

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