Gold Breakout?

by JDH on January 27, 2018

Sure looks like it:

From $1,302 on New Year’s Day, the low point of the year, gold has steadily advanced to $1,352, with only two slight pullbacks.  Not a bad month, so far.

The peak came on September 8, 2017 at $1,357, before a pullback to the $1,240 level in December.  On January 25 gold hit $1,366, and new interim high.  That would appear to be a breakout.

But:

After hitting $1,366 gold pulled back, and only made it back to $1,364 the next day, and only to $1,357 on Friday, very close to the exact peak back in September.  Is this a double top?  Perhaps.  The circled area on the chart shows a double top in April and June of last year, where gold hit $1,295 and then $1,296, and then that was it for a few months as gold retreated to the $1,220 area.

Will history repeat itself?  I have no idea, but my point is that just because a new intra-day high was achieved, if only by $9, does not mean that the next stop on the gold train is $1,400.  It may be, but a more likely scenario is a pull back.

What’s really going on?

It’s possible that some of the money that fled to Bitcoin is now returning to gold.  Bitcoin was around $10,917 back around December 6, 2017, before rocketing up to almost $20,000 less than two weeks later, before retreating to where it is as I write this on Saturday morning, around $10,917.  Speculators may be realizing that something that can drop by 50% in a month is not a good “store of value”, and so perhaps some of the Bitcoin Bubble Boys are redeploying their cash into gold.

Or perhaps this is simply a seasonally strong time of year for gold, and that’s why it’s going up.

So how am I playing it?

Cautiously.

I continue to hold my gold stocks, and I am increasing my holdings in some of them.

I have taken a small position in NUGT – Direxion Daily Gold Miners Bull 3x Shares NYSE + BATS, and will increase those holdings if we have a pullback this week.  I’ve still got lots of cash on the sidelines, because I think this chart of the DOW is crazy:

How can this not end poorly?

Is Trump really that great a President?

Time will tell.

Thanks for reading.

More next week.