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Why gold won't breach $2,000 soon; don’t get burned by this trading mistake

Kitco News

While gold prices are expected to remain constructive and see a breakout in 2021, the path of least resistance is also up for stocks, and “fighting the Fed” is not a wise decision at this time.

In a panel discussion, veteran traders Florian Grummes, managing director of Midas Touch Consulting, and Bill Baruch, president of Blue Line Futures, both said that shorting the markets during record-levels of quantitative easing from the Federal Reserve is not a good idea.

“Don’t fight the Fed, it’s that simple,” Grummes said. “It’s an old saying, it’s nothing new, but just don’t do it. Everybody who’s trying to short this market is getting burned. It just doesn’t make sense. They print so much money, just don’t do it. If you don’t believe these elevated stock market prices, then go to the sidelines and do something else, but don’t short the markets,” he said.

Grummes said that a stalling at current levels in the stock markets could be expected.

Importantly, the path of least resistance is higher for equities, the traders noted.

“I think this is the new normal. I think volatility is the new normal, and is that healthy? No, it’s not a healthy bull market in order to see volatility as such, but again, this is the new reality and if you’re going to trade it, if you’re going to invest in it, you have to not fight what the path of least resistance is,” Baruch said.

Additionally, new market phenomena are supporting equities at this time.

“There’s been some really interesting technical positioning that’s moved the market higher, so not just the Fed liquidity, but obviously in the news about retail investors and how there’s a phenomenon with call options. People are now looking for leverage so when call options are bought, the institutions selling those options then have to turn around and hedge their risks by buying the underlying, so it’s feeding upon itself higher,” Baruch said.

Baruch noted that the economy is already showing signs of a recovery.

“Just this week, we’ve seen retail sales, month over month increase quite a bit, but year over year, it’s still down 6%. I think the jobs scenario is much better too, so we’re starting to see the complete dismal data start to recover back,” he said.

On gold prices, a rally towards new all-time highs is likely to occur by no earlier than first quarter of next year, Grummes noted.

“I would say that by first quarter of next year, gold at $2,000 is likely. I don’t see it happening this year anymore. I would expect gold to be strong into mid-summer so once this two-month consolidation is over, gold should move to $1,800 and then maybe to the all-time high of $1,920, where I expect, definitely, another pullback,” Grummes said. “In November you have U.S. elections, so I think this is the most important date that we can foresee for the next few months.”

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.