We have been in this situation twice before in recent times. Gold reaches an inflection point such as the declining linear trend, and tests the line, but falls back. The troops are at the riverbank, but never cross.
We recently alerted you to some specific price levels to watch. We are now at or beyond those levels and the ability of gold to break and hold these levels for a few days now becomes critical.
Right now, the general thinking in all markets is that the GOP’s ability to hold on to the Senate, and a majority of Conservatives on the Supreme Court, will keep radical Democrats in check, even as they may take the White House. Thus, stocks are soaring expecting more stimulus, not punishing taxes or regulations that will be blocked by the Senate.
Without digressing too far, we think this is very short sighted. The fact is much of what determines life today is not the legislation passed by Congress, but edicts and bureaucratic rules passed by unelected Administrative agencies and political appointees made at both the Federal and local levels. For example, ‘Lockdown’–the policy of virtual house arrest and the shutting down of all “non-essential” commerce–did not occur through legislation but rather decree by bureaucrats.
However, the current election turmoil notwithstanding, it is the price action that is the most important.
You can see the break out today above both the short term negative linear trend and the blue 50 day. You might recall our last report that said we wanted to see bullion above $1900 to break linear trend and $1920 to break the 50 day moving average. As we write, bullion has blown through $1920 and is around $1950.
Silver is close but has not yet broken out.
On the other hand, mining shares are breaking out. So, the shares are confirming the action in bullion.
These break out levels need to hold for a day or two to be valid, especially since the metals have been prone of late to false breakouts.
Therefore, odds are very good (not yet confirmed by a day or two above the specified break out levels), that we will get strong action into December and January, which based on seasonality studies, tends to be the strongest period of the year for the metals.
As to the election, we will just have to see. We won’t know for a while who indeed will be President. Our basic view has been that Trump is no fiscal conservative and hence positive for metals. Both candidates want more “stimulus” because of Lockdown. However, Biden will bring in his crew of Modern Monetary people in and push for government programs with high price tags which would end up being even more bullish for gold.
–Neland D. Nobel, is a retired portfolio manager and Certified Financial Planner with 45 years of market experience in the securities and gold industry.
Charts courtesy of stockcharts.com. Information is derived from sources believed reliable but cannot be guaranteed.