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Gold Shines As Honeymoon Period Fades

Kitco News

(Kitco News) - March 27 - The tide is turning. The eight-year old equity market bull is tired and old. He's been running fast in recent months, giddy on expectations for massive corporate tax reform, deregulation and infrastructure spending that were meant to juice corporate profits and speed the economy. But, just ask the folks in Pamplona, the running of the bulls always must come to an end.

Stock market investors are bracing for the "Second Half Fade," which is just around the corner or may be already starting now. The infamous stock market "Sell in May" period begins soon, which also matches up with the end of the 100 First Days, or the so-called Honeymoon Period for the new Administration.

Buyers are nibbling on the stock market declines on Monday, and the market has retraced a portion of its opening losses, but a new minor daily downtrend pattern has formed on the daily S&P 500 chart. Lower daily highs and lower daily lows. The cracks are starting to widen in the equity market bull cycle.

Typically, the U.S. stock market vastly underperforms during the May-October timeframe, with most of the market's long-term gains chalked up during the November-April period. The historical seasonal stats surrounding this phenomenon are impressive.

What does this mean for gold? As the sea of red dominates stock trader's screens, the gold market is a shining safe-haven, posting solid gains on Monday and with wide open blue sky ahead. The 2017 gold market rally is just getting started.

Technical Take

The daily June Comex gold futures chart shows a nice "V" bottom to the recent corrective pullback to $1,198.00. Savvy traders used the latest dip as a buying opportunity and that could have been the last chance to scoop up gold for under $1,200.00 in 2017. The minor trend off the Dec. 15 low remains bullish. The June gold contract is trading above its 20-day, 40-day and 100-day moving averages, which is a positive sign for the trend following crowd.

Trading Tactics

In this environment, traders are using dips as buy spots for gold. New support has formed at $1,243.70 and a retreat to that zone would likely be short-lived. On the upside, June gold futures face initial resistance at $1,268.10, the Feb. 27 daily peak. Once gold bulls generate enough fresh momentum to blast through that ceiling, its blue sky ahead.

Bullish Gold Targets: The $1,300.00 per ounce level will act as a psychological magnet, but the next major technical objective is seen at $1,347.40, the Nov. 9 post-election spike.

If a 10%, 15% or 20% stock market correction unfolds over the next few months, the $1,347.40 level will be low hanging fruit for gold bulls.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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