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Market mayhem shows gold is the only game
Gold is the only game
The BREXIT has brought about one certainty – more uncertainty. And regardless of how the exit actually pans out, you can be sure that every little question, every political hesitation will be seized to create more.
The reason is that fear causes panic, and if someone can reasonably predict that panic, they can make money from it.
This situation will be with us for the foreseeable future, as it bounces from country to country in Europe and spreads across the rest of the world.
Events that start more market turmoil will include each suggestion that an EU member is seeking reform for itself, or the possibility of its own exit vote; any progress in the UK for Northern Ireland or Scotland to break ranks; any suggestion that EU exits talks have stalled or are not positive – for either side.
No doubt at some stage certain sectors – perhaps banks and builders – will appear to be so attractive that you can no longer ignore them. Be prepared for a rocky ride, but be prepared to be contrarian.
Start with gold. I shall resist the temptation to say I told you so, because I had not anticipated BREXIT as a reality. But the result is the same, with prices for gold bullion and gold mining shares hitting levels not seen since 2013.
After a big price rise on Aftermath Friday is there still time to get aboard? I think yes is the answer. The chart suggests that gold has two previous levels of resistance to overcome, both inside a further 7.5% increase – not unlikely and actually probable in the current environment.
The June 2016 edition of Gold Demand Trends from the World Gold Council revealed that in 2016 Q1 gold ETFs saw a 21% cash inflow increase on the year before, reflecting global anxiety well ahead of and in addition to Britain’s EU decision. The 364 tonnes added represents the second largest growth quarter on record.
ETFs are the perfect easy in/easy out way to get gold into your portfolio. The SPDR Gold Trust ETF – GLD – price is over $125, with resistance at $129.21 and $133.69, about a 10% leap. It’s a good solid performance, but it’s not one-way traffic. Profit taking – who wouldn’t after 4 years of waiting – left the improving price trend faltering for a while in April, but BREXIT fears kicked it back into play again in June.
Gold is the only game in town
Gold ETFs – either physical or synthetic, where no actual gold is held – are easy to buy. There are several listed in London, but it is just as easy to buy the bigger US funds where liquidity is assured – there are only 7 sovereign nations that have more gold than the US ETFs.
The chart describes the progress of the GLD price, were the pattern has played out as I described in The IRS Report last October, but now has more potential upside. Now having passed the January 2015 highpoint, a bounce from $124 would be very positive. I would anticipate highs of $143- $150, last seen as resistance in April 2013. The lowest you might expect the GLD ETF to reach is now $120, or the line created by the 50 day moving average.
This translates into an actual gold price range of $1,264 to $1,550.
The gold investment most likely to balance your accounts after the rout is goldminers. The Van Eck Vectors Gold Miners Trust ETF GDX is just 5% shy of 2014 highs – nearly 250% up on the January low of $12.40.
Overall remember that the gold market today is not the relatively stable haven it used to be. It’s an alternative, but is traded much the same way as equities, and is subject to similar influences, notably now the use of margin calls by City firms as a replacement for a traditional stop loss.
But still gold is the only game in town.
Peter Marshall, July 2016
Gold sets new records
Gold sets new records
Whatever way you spin it, gold has been setting new records.
- February showed the largest monthly gain in four years.
- 2016 Q1 had the largest quarterly gain since as far back as 1986.
- And 2016 has seen the biggest gains since the all-time highs back in late 2011.
You could have enjoyed those gains – and the comparatively settled trading away from mainstream equities – with a simple purchase of shares in GLD, the SPDR Gold Trust ETF. It has made gains of 22% since December.
But if you were anticipating what looked like a nailed-on rise in the gold price on the charts, you could have leveraged with the GDX, the Market Vectors Gold Miners Index ETF. In January 2016 the shares were $12.40 each, but they hit $21.40 in late March. That’s a gain of 72%.
If you had call options in those ETFs the gains would have been substantially more.
Numbers like these are bringing wider attention back to gold, and while oil and equities bounce around wildly, gold looks like a sheltered port in a storm.
But where is the price going now? Is this really the start of a new bull market?
At the beginning of March I said the price rise would stall, but not fall too far as there was solid support. In fact, the price did not fall even as far as that support, bouncing instead off the rising 50-day moving average.
All things being equal, I expect the gold price to start going up again now while equities and oil both fall. And the steeper any fall in oil or shares, the steeper the rise in gold should be.
The GLD chart below shows it as oversold, but not quite ready to bounce. That may change suddenly, so be prepared. I am starting to accumulate some long-dated call options in both GLD and GDX, while I buy puts in both the SPY S&P 500 ETF and DIA, the Dow Jones Industrial Average ETF. As gold sets new records I don’t want to be just watching, but in the thick of it.
I will continue with the oil play I outlined at the beginning of March, where I buy the DWTI 3x leveraged down Oil ETF at $38, and switch to the UWTI when oil hits $26. Allowing for some increase in the base for oil, I may adjust that up to $28.
In summary. Expect equity indices and oil to fall, while gold and gold infrastructure rise.
At least for the near future.