Within six weeks after the major breakout above $2100, gold has gone through $2300 and quickly moved over $2400, suggesting that $2500 is within sight. After soaring to nearly $2450 last Friday, Gold Futures made a strong $75 reversal but not a key reversal, as gold prices did not take out the low of the previous day.
Gold appears set to close a fourth consecutive week above its upper weekly Bollinger Band, an algorithm designed to keep price action between an upper and lower level 95% of the time. The gold price is now consolidating inside of a symmetrical triangle with resistance on last Friday's high at $2450, and support on the following Comex session low at $2340.
Gold remains quite overbought, so this period of consolidation is healthy to work it off. Since gold began its breakout move in late February, the rising 18-day moving average, now at $2320, has been good support.
However, in robust bull markets prices persist higher despite overbought conditions as the fear of war in the Middle East is not about to go away any time soon.
With geopolitical uncertainty rising, gold continues to shrug off "higher-for-longer" interest rates, strong U.S. economic data, and a rising U.S. dollar. We are experiencing a powerful breakout following a major consolidation below key resistance at $2100 lasting 43-months.
If the Middle East conflict further escalates, prices could go north of $2500-$2600. But if a ceasefire takes place, gold could fall all the way down to $2200 and still remain in an uptrend as the U.S. remains trapped in a debt spiral.
After a major breakout, the trend is up with rising volume and, following a period of consolidation, we should resume that uptrend. War, divisive geopolitical and domestic politics, along with monstrous out-of-control global debt, are expected to continue being the main drivers.
After several Fed officials jawboned rates remaining "higher-for-longer" this week, the true weight of U.S. debt has come into sharp focus and not been lost on the gold price. The U.S. is on the brink of a financial challenge with nearly $9 trillion of its debt approaching maturity within the next year.
This debt will need to be refinanced at interest rates almost twice as high than when it was originally taken on. Though the average interest rate the U.S. is paying on its debt seems modest at 3.27%, this is the highest rate the market has seen since 2008.
Back then, the U.S. debt was slightly above $10 trillion. Fast forward to today, and it has ballooned to over $34.6 trillion. Notably, while it took over a century to reach the first $10 trillion, the most recent $10 trillion was amassed in just four years.
During an event sponsored by the Wilson Center on Tuesday, Federal Reserve Chairman Jerome Powell said, “The recent data have clearly not given us greater confidence, and instead indicate that it’s likely to take longer than expected to achieve that confidence…If higher inflation does persist, we can maintain the current level of restriction for as long as needed.”
The stock market continued its move lower after Powell's speech, while the gold price remained in high-consolidation near $2400. With both geopolitical and macroeconomic tension growing each day, gold has outperformed most everything since its breakout move began at the beginning of March.
Every day this week, the S&P 500 has opened in positive territory only to close down each time. The world’s most closely followed index has done so seven times this month already, which is one shy of the monthly record of eight days set in 2012, according to Dow Jones Market Data figures going back to 2008.
With the Dow, S&P 500 and Nasdaq all moving below their respective 50-day moving averages this week for the first time since breaking out to a 20% move higher from November until the end of Q1, a sell signal will be confirmed with an S&P close below 4,900.
After a major breakout was technically confirmed with a strong close above key 4-year resistance at $2100 to end Q1, the gold price sniffed out this topping in the stock market as the safe-haven metal began to outperform the S&P coming into Q2. Gold has climbed an impressive 82% over the past five years, outpacing the S&P 500.
Moreover, the world's largest super-power entered uncharted territory this week. On Monday, a former president began to be tried in a court of law for the first time in American history.
This will be the first of four criminal trials against leading GOP candidate Donald Trump for the U.S. Presidential election in November, with just over half the country seeing these legal proceedings being backed by Democrats seeking to interfere in the 2024 election.
The entire world will be watching the trial, and if Trump takes the stand, it will perhaps be the most watched trial in history. What could possibly go wrong if the leading GOP candidate is found guilty, then jailed ahead of the election?
In the Middle East, after Iran seized an Israeli container ship, along with launching retaliatory strikes, gold remained well bid when the Israelis launched an attack on Iran, escalating the hostility towards all-out war with market fears escalating.
Furthermore, the U.S. intervention in defending Israel during the April 13 drone attacks may be seen as justification for Russia to defend Iran against any direct attack by Israel.
After President Joe Biden said U.S. forces had helped Israel down "nearly all" the drones and missiles, and pledged to convene allies to develop a unified response, Russia dispatched a navy frigate equipped with supersonic missiles to the Mediterranean Sea via the Suez Canal.
Meanwhile, mining stocks have also been consolidating recent outsized gains. Although gold stocks have been outperforming the stock market since the beginning of March, the miners have yet to begin outperforming as history has dictated after previous major gold breakouts.
With sector participants having been conditioned over the past four years to expect an extreme overbought gold price to fishing line, most quality junior issues have also lagged gold this week.
We have been seeing strong central bank buying of gold, hedge funds are also coming back into the market, and Costco’s gold bars have been met with enthusiastic buying to the tune of up to $200 million in sales per month.
When a bull resumes after a major breakout has been confirmed, it is vital to change one’s mindset from bearish to bullish. If you doubt the bull, you will not be able to change mindset. Once the market has swung from black bearish to newly bullish, believing in the bull is essential or you end up being a victim of your own emotions.
Eventually, the bullish gold momentum should translate into the gold stocks more consistently. Now that fear has crept into the stock market, outsized A.I and crypto profits should begin to rotate into the relatively tiny mining complex.
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