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Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
All-time record highs above $1,900 as Gold marches higher!
Many years ago while studying gold price charts, something struck me about how the gold price behaves.
I noticed that when gold is in a bull market, its price tends to act in a particular way. Put simply, it typically goes through a period of rising, followed by a period of consolidation.
This consolidation sometimes consists of a series of pullbacks and rallies within a range. These pullbacks and rallies can be more pronounced, especially if gold has recently had strong price gains.
Other times it’s a sideways movement in a relatively narrow range, which can gradually become increasingly narrow over time. Often, that signals that the gold price is building energy for a big move higher.
Observing this, I realized that the price action resembles a staircase. So I called it the “Golden Staircase”. Here’s how it looks…
The Golden Staircase
It’s very simple. The red lines are the “steps”, and the green lines are the “risers”.
Often times, once the price of gold breaks out above the red “step”, it continues to rise, but not always. Back in March, thanks to the market shock of Covid-19 causing the global economy to shut down, the price of gold dropped below the previous “step” around $1,550, temporarily pulling back to test the $1,500 level. But as we now know, that was very short-lived.
The latest “step” seems to have been formed at the $1,750 level, which we’ve easily surpassed, as we are now above $1,900. Support appears to be forming around $1,800 which, if we look at a shorter-term chart, has been tested a couple of times in the last few weeks.
My takeaway is this. We’re in a secular bull market, the second half of which began in late 2015.
Yes, there is certainly room for some weakness as gold is becoming overbought. Gold stocks, however are also becoming overbought. A correction may lie ahead.
Gold just gained $100 per ounce, or 5.5% in a week. A correction down to retest $1,800 or even $1,675 would go a long way to shake out some weak hands.
That would be healthy given the sizeable runup from $1,575 since the start of this year.
But fundamentals remain strong and supportive of higher gold prices. A second round of stimulus in the U.S. is likely to come soon. Covid-19 case numbers have flared up and caused some major cities to scale back on opening up for business. Interest rates + real yields remain extremely low and falling. Economies are struggling.
At this point, gold is in a massive bull market, having established all-time record highs in all major world currencies. I think we’re going to see gold prices surpass the $2,000 milestone before the end of 2020.
Stay long gold. Just be ready for some interim weakness as the “Golden Staircase” marches onward and upward.