Gold: Kingmaker or Heart breaker?

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Tickers discussed: EurUSD GLD GDX  GFI GOLD KGC  NEM

The video provides a detailed look at Gold from a macro, sentiment and technical perspective with trade ideas and commentary aimed at keeping you on the right side of the trade.

Companion Video

Video covers a discussion of the charts below along with commentary on potential trade ideas. Run the video at 1.25x to reduce run time with no loss of quality.

Gold:  Kingmaker or Heart-breaker?

Gold has been on a nice bullish run after taking a hit in the March liquidation sell off when raising cash took precedence over everything else. While most pundits and gold bugs alike see this as the “golden age” for gold with endless money printing and  currency debasement the question now for traders is which direction is the next move?  FOMC Chair Powell may be a catalyst this afternoon. We’ll have to wait and see. Let’s set the table with where we are now.

A falling US Dollar is a tailwind, but have we found a short term bottom?

Euro / USD Pair

A falling $USD ( rising EUR/USD pair ) is a tailwind for commodities, precious metals, and to a certain extent equities.  The pair currently is consolidating below long-term downtrend resistance and has been toggling between $1.175-1.190 for weeks. If the pair could somehow punch through $1.20 it would clear long term resistance and have room to run. This would likely send gold and commodities racing higher.  Of course, if the pair is ultimately rejected here, and the USD strengthens, then the big plans for gold probably are tempered in the near future.

USD Positioning- Dollar shorts are at max positioning

Speculators have piled into the USD short in a big way and USD positioning in near “max short”. With the EUR / USD pair at resistance, the USD itself oversold and with traders set up as max short, it’s a ripe set up for at least a short to mid-term USD reversal for a move higher.  While gold can go higher in a rising USD environment, it certainly would be a headwind.  In my experience when you’ve got either a crowded short or a crowded long, the market figures out a way to make those people lose.

Gold Volatility – Coming off the boil

Like we’ve seen with AAPL, TSLA and other classes, when the frenzy gets going Vol increases and option buying gets more expensive. THe same happened with gold. On the run up in gold, when call buying was going nuts, gold vol increased. But now, during this long consolidation phase, gold vol has come out, making option buying a lot cheaper.

 

Macro View for gold 

As mentioned above, if there was ever a time to own gold from a long-term macro view, it’s now. Deficits are going vertical and with the MMT fiscal mentality gaining wider acceptance, the printing presses will be going non-stop for a long long time. Gold may be poised for the $5000 moonshot gold bugs have been talking about for 20 years.  Stars may be aligning for a decade long tailwind.

Gold Sentiment is flashing contrarian Bear

Again, talking short to medium term here, with gold sentiment hitting the upper end of sentiment, does the market figure out a way to knock some air out of the balloon before a re-ramp or do we go from here?

 

Checking out the Charts

Chart discussion is on the video

$GLD – Gold ETF

$GDX – Gold Miner ETF 

Individual Gold miners

$GFI – Gold Fields

$GOLD – Barrick

$KGC – Kinross

$NEM – Newmont

Pulling it all together

Gold is in a bull market. The weekly trend is in a strong uptrend so I like it long term. The question is all about timing and time horizon. If you’ve got a long -term time horizon I like the idea of buying pull backs when they come and not try to time things perfectly. For shorter term traders like myself, I am taking a wait and see approach, especially here in front of the FOMC. I don’t like the crowded short on the $USD and am therefore looking for a reflex rally in the dollar to flush some of those guys out. Will it come? Don’t know. But with the EURUSD pair at a 15 year downtrend line, price has to prove it with a breakout. Otherwise I am assuming that level holds.  If that currency pair stages a massive breakout, and the $USD craters, I would assume its off to the races for Gold and the commodity complex in general.

Bottom line. Looking ( and hoping for a pull back to the $175 – $172.5 level to get long, but if those grand plans don’t pan out, I will jump on a $GLD / $GDX long on a clear breakout and look for new highs.  Powell may be the catalyst but I am wary of FOMC whipsaws. It’s a touchy call.

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