Gold – An Update

by JDH on December 12, 2020

Not a great last four weeks for gold, eh?

On November 9 gold peaked at $1,965, and then crashed to $1,849 later that same day.  November 30 saw a further low of $1,763, before recovering to the close on Friday at $1,839.

The gold chart shows an obvious wedge formation.  Which trend will prevail?  The red down trend line that started on November 9, or the uptrend line that started at the bottom of the crash in March?

I’m betting on an uptrend, but there are some headwinds.

Gold started the year at $1,514, so year to date gold is up over 20% on the year.  That’s pretty good.  A year ago it was $1,471.  Five years ago it was $1,043.  So, there is no doubt that the medium to long term trend is up.  (And yes, I realize that in September 2011 gold was over $1,900, so if you bought at the peak you didn’t recover until August of this year, but that’s how it goes with gold).

The good news is the long term trend is up, and with all of the money printing happening, gold should continue to be a store of value.

The bad news is that weakness in gold is very common at this time of year, but that also implies that now is a good time to buy.

The other bad news is that institutional investors are slowly moving to Bitcoin as a store of value, so some of the “safe money” that would typically flow to gold is flowing to Bitcoin.  That’s fine, there continue to be more avenues to invest in gold than Bitcoin (you can’t easily put Bitcoin in your RRSP, for example, while there are lots of gold stocks you can buy).  The move to Bitcoin may slow gold’s ascent, but it won’t stop it.

Gold is currently caught between the 50 day and 200 day moving average; a move decisively below the 200 day moving average is likely a buying opportunity, because gold doesn’t stay there for long but a final capitulation to $1,700, or even $1,650 is possible, although I assume it will be short lived.

It is also tax loss selling season, so anyone who bought stocks at the peak this year may want to sell and take advantage of the tax loss, which becomes a good buying opportunity.  My favorite pick: EQX.TO – Equinox Gold Corp.  Here’s the chart:

Equinox has had some problems at one of their mines (Los Filos) but their other properties are doing well, so I think a buy order around $11.50 is a solid bet.

We shall see.

That’s the update.

Bitcoin is still looking good (but it’s a gamble, not an investment), so govern yourselves accordingly.  Have a good week.