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Is The Gold Rally Overdone Or Headed For New Highs?

By Investing.com (Barani Krishnan/Investing.com)Jun 26, 2019 03:37AM ET
www.investing.com/analysis/gold-rally-overdone-or-still-good-to-go-200434728
Is The Gold Rally Overdone Or Headed For New Highs?
By Investing.com (Barani Krishnan/Investing.com)   |  Jun 26, 2019 03:37AM ET
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Just a few months ago, investors who weren’t into gold were barely looking in its direction. For much of the first quarter, the yellow metal sat on the sidelines, moving just a few dimes on some days, as the dollar became the preferred hedge against the trade war. To brand gold as “unexciting” then would have been a dramatic understatement.

Fast forward to this week: gold just can’t stop making new peaks, hitting—for days in a row—highs not seen since 2013.

Even after Federal Reserve Chairman James Powell signaled on Tuesday that a rate cut in July wasn’t a given, gold bulls were undeterred. After a brief turbulence, U.S. gold futures on Comex settled up a fourth straight day for their ninth positive settlement in 11 days.

Fund managers and family offices that had a mere passing interest in gold at the start of the year are now piling into the precious metal.

And why wouldn’t they?

Gold 300-Min Chart - Powered by TradingView
Gold 300-Min Chart - Powered by TradingView

Spot gold, reflective of trades in bullion, is up almost 10% on the year. Almost all of that comes from the June rally, which has been its biggest since February 2016.

And holdings of SPDR Gold Trust (NYSE:GLD), the world’s largest gold-backed exchange-traded fund, saw the biggest percentage gain in nearly 11 years on Friday.

A Monster Asset

What has made gold such a monster asset all of a sudden?

Analysts give a combination of reasons, beginning with the anticipated Fed rate cut, which could come as early as July; the festering U.S.-China tariffs fight, that’s threatening to tip the global economy into recession; Iran’s retaliation against the Trump administration’s sanctions that have turned the entire Persian Gulf into a hotbed of fear.

George Gero, precious metals analyst at RBC Wealth Management in New York, told Investing.com:

“Gold continues its extraordinary march higher as global economic worries, political worries and U.S. politics underpin many bids from buyers in many countries. Opportunity costs for buying gold have also lowered buyers resistance.”

“Everywhere you look, from South America to China and the Middle East, the United States is engaged in political battles and you need a hedge for that. You also need a hedge against the stock market.”

That last line would ring true with most investors as gold futures settled up on Tuesday despite their initial slide on Powell’s comments that the Fed will do what it had to on interest rates and not be cowed by the White House. Wall Street’s three leading stock indexes, meanwhile, closed down.

Wednesday’s early trade in Asia saw gold prices unusually in the red, and some think it’s a sign that the June rally was overdone.

Some Doubt Gold’s Staying Power If Fed Cut Disappoints

After Powell’s comments that "monetary policy should not overreact to any individual data point or short term swing in sentiment," doubts are beginning to surface from bond to equity and forex markets that the Fed might do as much as a 50 basis points cut in interest rates needed to continue feeding the gold rally.

Indeed if the Fed opts for a smaller-than-expected rate cut, of say 25 basis points, it will probably amplify U.S. President Donald Trump’s criticism of both the central bank and Powell. There's talk the president might replace Powell as chairman, although Powell's actual term as a Fed governor would go on. The legality of such a move is not entirely clear, although such a crisis at the Fed might actually be good for gold, given its safe haven draw.

That’s one reason many believe that the current dip in gold is just a blip before new highs of $1,450—or even $1,500—are attempted.

Investing.com Daily Technical Outlook is still calling a “Strong Buy” on Comex gold for August, citing a near-term top resistance of 1,464.45.

Given the contract’s Tuesday settlement of $1,418.70, that’s a premium of nearly $50, or 3% more.

Is The Gold Rally Overdone Or Headed For New Highs?
 
Is The Gold Rally Overdone Or Headed For New Highs?

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Mohamed Mahmoud
RealMada Jun 27, 2019 6:01PM ET
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I am sure that nothing had been expected been done before.
Seb Kraemer
Seb Kraemer Jun 27, 2019 3:58PM ET
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Pared back my position from 15% to 10% yesterday, still hoping for $1450+ after rate cuts.
Alan West
Alan West Jun 26, 2019 7:41PM ET
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Way overpriced. Trump’s wary of a war with Iran, could be very messy. Election next year, so Trump will want everything sorted.
Tom Walt
Tom Walt Jun 26, 2019 6:01PM ET
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I am growing my long positions here. I only looking for long from now on. According to elliet, the new bull cycle has started from the June fomc meeting. I am net long any pullbacks or flat base here.
Tom Walt
Tom Walt Jun 26, 2019 5:53PM ET
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Gold oil and equity will all rally into 2020. Then, gold will likely hit all time highs and oil come above $100. Equity will run into bubble and crash.
Hank Williams
Hank Williams Jun 26, 2019 1:55PM ET
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Barani, what would you Think of a scenario where the stock indeces came down and oil went up, with gold, copper, corn...... Sounds like a reason to leave interest rates alone.
George Steven
George Steven Jun 26, 2019 12:32PM ET
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I would say it's real. But big break outs often have to re-trace, Gold has to yet to receive  mainstream attention. We are still in the accumulation phase (Dow Theory) Maybe 1500 will be bring in mass participation. Also Gold Miners can't really take off when we are at ATH (SP).  FED basically has no choice to but cut at least .25. Even that may not be enough. No rate cut will tank the equity markets.
Keith A. Casey
Keith A. Casey Jun 26, 2019 11:08AM ET
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Central Banks accumulation of gold last year while price was lower was a key indicator of things to come for gold. Uncertainty is always a good catalist, now that there is the additional threat of the unparalleled national debt make gold a VERY safe haven asset.
Heiko Petrich
Heiko Petrich Jun 26, 2019 10:24AM ET
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Rally? Lol hasnt even started yet...
Barani Krishnan
Barani Krishnan Jun 26, 2019 10:24AM ET
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Maybe for the gold bull it hasn't. But for some traders, it may be a wait-and-see till the next Fed announcement.
Marita Karin
Marita Karin Jun 26, 2019 10:11AM ET
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so it will drop below 1400 or 1300 roller till coaster come back?
Barani Krishnan
Barani Krishnan Jun 26, 2019 10:11AM ET
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It has paused. Whether it will pick up and go gangbusters again will depend on what the Fed says between now and July 31.
Doug Fabiani
Doug Fabiani Jun 26, 2019 9:55AM ET
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We will see.
Barani Krishnan
Barani Krishnan Jun 26, 2019 9:55AM ET
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Yes.
Tee Peng Loo
Tee Peng Loo Jun 26, 2019 9:36AM ET
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Gold has limited upside now. Time to lock in profit and buy back when it falls below 1300
Barani Krishnan
Barani Krishnan Jun 26, 2019 9:36AM ET
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That's the impression some have based on the events of the past 24 hours.
 
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