Gold: Trump Explosion Higher, or Triple Top

by JDH on August 19, 2017

This is an interesting chart.  Very interesting.  Tell me what you see.  Your choices are:

  1. A triple top at just under $1,300, indicating significant resistance at $1,300, so it’s likely that gold will retreat back to the $1,220 level, or
  2. A break out, since gold traded on Friday, intra-day, as high as $1,306.90, before closing for the week at $1,291.60

Yup, it’s a conundrum.  Do you base your analysis on the intra-day high, or the closing price?  I guess we will know for sure in a week or two, but here are the arguments on both sides.

On the bear side, if gold was truly breaking through the significant resistance level it would have, and it would have closed the day at the new, higher levels.  It didn’t.  That’s bad news for gold.

On the bull side, there is no doubt that gold touched it’s highest level since, you guessed it, the night of November 8, Trump election night.  That’s a nine month high, and that’s not insignificant.

The other bull market argument for gold is that with all that is happening in the world, gold should be on a tear.  The US dollar is not strong, and typically when the US Dollar is weak, funds flow into gold, as they have done since the beginning of May.  The world situation is deteriorating.  Terror attacks are now commonplace. At least once a week some high profile person leaves the Trump White House.  Civil war seems inevitable, and more US troops in Afghanistan and other places also appears inevitable.

So why isn’t gold at $5,000 an ounce?

Good question.  I have many guesses.

First, the stock market, despite weakness this week, is doing great, near all time highs, and the broader averages are still up over 10% since the election of President Trump.  Unemployment (if you believe official government statistics) is low. Interest rates are low.  The economy is booming.  Gold is a crisis play, and the economy does not appear to be in crisis, so there is no reason for gold to be trading higher.

Second, what may appear to be upheaval in the White House may not be a bad thing.  Even though the Republicans control the Senate, the House, and have the majority of governors, and the White House, they can’t get anything done.  They all campaigned to repeal Obamacare, and they couldn’t even do that.  No tax reform.  No wall.  Nothing.  So isn’t this a disaster?  If you voted to “drain the swamp” then yes, this is a disaster, but if you consider politics to be nothing more than a reality show, this is great theater.  Nothing is happening, so no real damage is being done.

Yes, there are protests, and they appear to be violent, but has life in America changed?  Is it really any different now than it was five years ago?  I don’t know, I’m Canadian, but judging by the reaction of the markets, it’s status quo.

Perhaps the markets are happy that there is a “crazy man” in the White House.  Perhaps that’s what they want.

Gridlock is good.

So what are the investment implications?

I’m guessing that the next week will be a down one for gold, so I’ve taken a small position in DUST – Direxion Daily Gold Minders Index Bear 3X Shares, a bear leveraged ETF, and we’ll see what happens.  I bought it on Friday at $26.82, and I’ve placed my sell order at $34, good for two weeks.  If gold closes above $1,300, I’ll sell and take the loss.

That’s the plan.

(And disregard everything I say about politics.  Other than the fact that I predicted a Trump victory, I know nothing, so believe nothing I say).

Thanks for reading.  See you next week.