What Can Stop Gold Now?
The comments below are an edited and abridged synopsis of an article by Jordan Roy-Byrne
Gold is trending higher and positioned above rising 200-day moving averages when charted against the stock and bond markets, commodities and foreign currencies. It recently closed at a 2-year high against the conventional 60/40 portfolio.
On a technical basis, nothing will be able to stop gold when it breaks to a new all-time high. Such would confirm the most significant gold breakout in roughly 50 years.
Consider the negatives gold has had to deal with: The Fed has raised rates aggressively; the US Dollar Index surged almost 30% in 17 months; the real 10-year yield gained more than 2.50%, the largest move in the history of the TIPS market; the rise in the US dollar and real interest rates was much greater than the rise in 2013 and even larger than in 2008. Gold declined only 19% compared to 30% and 34% in 2008 and 2013.
Precious metals typically bottom around 11 to 12 months (at the latest) after the stock market peaks. The market is beyond that point, and gold/gold stocks have already bottomed after a 2-year-long correction.
Until 2008, gold had risen every year for seven years. Now, gold is coming out of an 11-year secular bear market. The amount of capital in precious metals today is dwarfed by 2008.
The best comparison based on Fed policy, the structure of the bear market and the economy is a combination of the 1968-1970 and 2000-2002 periods.
Coincidentally, those downturns marked the start of secular bear markets in the S&P 500 and secular bull markets in gold.
The stock market would lose its 40-month moving average (low 3800s) during the next leg lower. That is a powerful signal of the start of a new secular bear market.
The vertical line in the chart included showed when the S&P 500 lost its 40-month moving average after the start of those secular bears. That is exactly when a bull market in precious metals can begin.
Gold has taken every blow (surging dollar, surging real interest rates, aggressive Fed) yet is outperforming everything and is barely more than 10% from an all-time high.
Despite strong bearish fundamentals, gold has held up well, an extremely bullish development.
There will be corrections along the way, and gold will have to get through resistance from $1,870 to $1,950. But aside from that, there is nothing that will stop it.