It has been nearly two years since we first turned bullish on Gold coming into the fourth quarter in 2018, where Gold was near 1150/oz and GDP at 4.2%, marking the top of the business cycle. I have learned that if you can get the “macro theme” correct, you can build a portfolio of assets that can weather any storm. While many will disagree, our current fourth-quarter economic models indicate a 60% chance of a deflationary environment, while a 40% chance could result in stagflation. Remember, we have to position our portfolios for the market we have, not the market we want. Don’t worry; I will not tell you to sell your gold/silver yet or call a top; therefore, you can put the blood pressure medication back in the cabinet.
I think we can both agree that economic growth as we know it right now is dead/nonexistent. For instance, Germany is in an economic tailspin; the French and Italian stock markets are signaling lower highs and are moving back into correction territory. I know the wild card you are going to throw at me, the “dollar.” Yes, your correct; the dollar has declined for eight straight weeks, but now it is starting to signal higher lows up three of the past five weeks. The chart tells me that the Fed is close to exhausting all of its ammo, with one or two more available tools that are not very practical. They can buy stocks directly ( perhaps in furloughed companies), or they can allow yields to go negative. We cover the economic backdrop and all the quantitative analysis in our “Gold Trends Macro Book,” You can request yours here: Free Gold Trends Macro Book.
Technical view of the gold market
Above is a chart of the continuous gold futures contract over the past year. Many of you ask why we prefer the futures over other trading vehicles? The short answer is that futures trade nearly 24/hours, closely mirror the spot price, offer capital efficiency, have a more favorable tax treatment, and significantly more liquidity and volume than direct ETFs.
Technicals: No one is screaming for Gold this morning, but it is holding up much better than silver right now, so we do not think you need to be exiting your winners; however, traders must be wary if the metal cannot close above 1901-1907 today. Additionally, our near-term upside target is 1933-1937, and we think it won’t be easy to get above here in the near-term; this is the area in which we will look to exit “tradable” longs while maintaining “core” positions. To clarify “tradable” versus “core” positions, “tradable” is the icing on the cake, its that extra position you were not so sure about at first. Still, it all worked out, and you can sell it and deploy those profits to other assets. “Core” positions are your physical or in trading account your position size that matches your asset allocation policy, for instance, if I have a 12% gold allocation model listed as “core.” That position then grows and becomes 15-20% of my portfolio; I might sell that extra 3-5% and allocate it to a different commodity like platinum, silver, or even oil.
The first critical support is 1895.5-1898, and this aligns settlement with our momentum indicator; a decisive move below here intraday is damaging to the price. I went back through 20 years of my trading strategies to create a Free New “5-Step Technical Analysis Guide to Gold.” The guide will provide you with all the Technical analysis steps to create an actionable plan used as a foundation for entering and exiting the market. You can request yours here: 5-Step Technical Analysis Guide to Gold.
If you have been working with us and are looking to position in Gold futures for the long run, we suggested that our clients consider using FOUR Micro 10 oz December Gold contracts per $25,000 and buying TWO at 1910 and TWO at 1855with a stop at 1790. Doing such would ideally risk $3,700. We would look to a gold target of 2275/oz, which would allow for a profit of $15,700. We are currently building a similar strategy in the 1000 oz Silver futures. If you would like to be up to date on our strategy’s developments in the futures and commodities markets, please register for a Free two-week trial by clicking on the link here: The Blue Line Express Two-Week Free Trial Sign up.
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