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July 2019 Update on Gold

There is a lot going on in this chart of longer-term importance.

First, gold has emerged from an enormous six-year rounded bottom base, with a cup and  handle break out.
July 2019 Gold Update

After breaking $1360 and then breaking $1400, there is not a lot of resistance until the $1530 area (circled). Once this consolidation, down off the all-time highs, was broken back in 2013, you can see the very sharp decline that occurred.  The decline was so fast that there is not much resistance ahead for about $100.

The exploded views to the right show also the 40- and 65-week moving average turning higher.

While some indicators (not all) are overbought, as long as gold stays above $1375, it looks favorable.

Doubtless there are many who view technical analysis on par with entrail reading, but for those who follow the craft, gold action is very impressive.

As for the reasons, the best explanation seems to be a wider recognition that “easy money”, i.e. low rates and plenty of central bank liquidity will be supplied by the FED, the EU, and the Japanese central banks will continue.  The quick about face by the FED and other banks indicate they will not tolerate weakness in the economy and will rush liquidity to the scene.  Markets have now become trained to expect constant intervention by central banks.

In the US, both political parties are embracing spending and no party right now argues for fiscal rectitude.  Combined with the demographic trends on entitlement spending, trillion-dollar deficits will persist and accelerate in the years ahead. The Democrats are embracing radical political positions and embracing new theories of money, such as Modern Monetary Theory.

Foreign buying and central bank buying continues to impress while US demand remains slack, which offers tremendous potential once US investors awaken from their slumber regarding gold and the risk of currency depreciation.

There are those saying this is a “false breakout.”  This is possible, of course, but unlikely for the following reasons:

The base that gold has made is huge.

Long term moving averages have turned up and broken the long term linear trend as well.

Gold is showing superior relative strength to the US stock market, the strongest of all global equity markets.

Gold and gold stocks in particular are very cheap relative to other asset classes.  With gold at $1400 six years ago, gold shares were two to three times more expensive than they are today.

Central banks are being super accommodating and have been strong buyers.

Interest rates are low and still falling.

We have entered the political season and central banks are unlikely to intervene in the election process, other than to assist incumbents.

In conclusion, other than being short term overbought, gold has made some impressive break outs in very long term charts.

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