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In The Way of Gold Bugs' $1,800 Dream: Those Pesky Stocks

By Investing.com (Barani Krishnan/Investing.com)CommoditiesJun 05, 2020 09:17AM ET
www.investing.com/analysis/in-the-way-of-gold-bugs-1800-dream-those-pesky-stocks-200526806
In The Way of Gold Bugs' $1,800 Dream: Those Pesky Stocks
By Investing.com (Barani Krishnan/Investing.com)   |  Jun 05, 2020 09:17AM ET
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Gold bugs got the same memo as everyone else: “Don’t Fight The Fed”. What no one told them was they had to tussle with stocks for the same money the Federal Reserve was freely throwing to prevent markets from seizing up due to the coronavirus.

The trillions of dollars the Fed, Treasury and Congress have been — and will be — approving to disburse as loans, grants and outright aid to shield businesses and individuals from the sharpest downturn in American history is, without a doubt, great for that safe-haven called gold.

Yet, gold bulls that saw the pandemic as a chance to cross into the long-eluded territory of $1,800 an ounce — and even get to $1,900 where a new record high awaits — didn’t expect to be in such a dead-heat with stocks for all that stimulus money and near-zero U.S. rates.

In one of the most astounding recoveries ever from a collapse, the S&P 500 is down less than 4% on the year, after plunging as much as 33% in March, at the height of the COVID-19 lockdowns. The Dow Jones, down 36% on the year just three months ago, is off less than 8% now. Both indexes, incidentally, hit three-month highs this week. If that wasn’t enough, the tech-heavy NASDAQ has been positive on the year for a couple of weeks now, showing a 7% annual gain.

Gold Vs S&P 500 in 2020
Gold Vs S&P 500 in 2020

A Bumpier Ride Than Stocks

Gold’s ascent has been less smooth. Starting off from a February low of just above $1,550, the price quickly tested $1,700 by March. April even saw the largest gain for gold in eight months — up nearly 6.5% — that brought it to within $12 of the coveted $1,800 mark.

Gold futures are up nearly 12% on the year, while the spot price, which tracks trades in physical bullion, has gained almost 13%.

But throughout the rally, gold has also been fighting to stay above $1,700. In April, it slipped to as low as $1,576 at one point. This week, the struggle was evident again, with gold futures getting to around $1,690, before rebounding to reach $1,725 on Thursday.

Each swing lower in gold has invariably coincided with a swing up on Wall Street, which often ran off with any stimulus news faster than gold could respond to, as a potential inflation concern.

And before the full impact of the U.S. fiscal response to the pandemic hit markets, gold has been hobbled by stocks in another way. In the early weeks of the crisis, as equities went into near free-fall, gold also crumbled, as investors dumped their profitable long positions to raise cash for margin calls on embattled stocks.

Dollar Has Been The Lesser Evil For Gold

All these have made stocks a worse nemesis for gold through the pandemic than the dollar. While a strong greenback has traditionally tended to act as a drag on gold, it has proven a lesser evil this time, gaining just 5% on the year.

Jeffrey Halley, senior market analyst for New York-based OANDA, said:

“Overall, the weakness in the U.S. dollar looks set to continue as lagging currency markets fully embrace the post-COVID-19 global recovery narrative."

While “engagement in the stock rally is nowhere near 100%”, the dips, however, remain shallow and the price action consolidative, not corrective,” he said.

That makes gold vulnerable each time it crosses $1,750, and strong whenever it gets under $1,700. “The balance of probabilities is still suggesting that more downside pain remains for long gold positioning, possibly meaningfully so.”

Gold Correlations With SPX And DXY
Gold Correlations With SPX And DXY

James Hyerczyk, a Florida-based technical analyst for gold, concurred. “August gold futures haven’t made a new high for the year since April 14,” he wrote on Friday.

“This tells me that investors are not willing to chase the market higher at this time. Their only alternative is to play for value, which is why I think bullish traders are going to allow this market to pull back into at least $1621.90 to $1582.40.”

Technically Challenged Maybe, But $1,800 Still A Target for Gold

Technically too, gold in a stalled mode, writes Rajan Dhall, analyst on FXStreet. “If the $1,750.00 per ounce level is broken, analysts can look for higher levels once more. Until that point, the Fib extensions on the downside could be the potential targets."

He adds:

“At the moment the 200 Simple Moving Average is providing some resistance and the price is also under the 55 Exponential Moving Average. The Relative Strength Index indicator has pulled away from the oversold zone allowing some more space for another move to the downside.”

Others have a more positive view.

“Yes, I recognize that we are in the midst of a major ‘risk on rally’, but at the end of the day there are so many moving parts out there that could cause problems,” said independent trader and analyst Christopher Lewis said in a column on FXEmpire. “It is extraordinarily difficult to get comfortable shorting gold anytime soon and of course we have plenty of support levels underneath.”

George Gero, long-time managing director for precious metals at RBC Wealth Management in New York, says gold is the only multi-hedge asset capable of meeting a rash of challenges from geopolitical unrest to currency devaluation, equity market correction and inflation.

Gero told bullion trader Kitco in an interview:

“I feel this is a temporary good pull back just as the pull back ... Over the long term towards the end of the year, I'm still looking for a $1,800 gold price.”

In The Way of Gold Bugs' $1,800 Dream: Those Pesky Stocks
 

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In The Way of Gold Bugs' $1,800 Dream: Those Pesky Stocks

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Comments (21)
Haresh Chandwani
Haresh Chandwani Jun 06, 2020 9:28AM ET
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Gold is REAL. It will run up to $5000 or even more within a year.. Stocks are pumped by Fed and "manipulated" data.. Like yesterday, Fed couldn't pump, so it "manipulated" nonfarm payroll figures..
Frederick Piumelli
Frederick Piumelli Jun 06, 2020 7:56AM ET
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Is it possible that small governments that cant print like the big guys are dumping gold to stay afloat?
Armand Brunelle
Armand Brunelle Jun 06, 2020 5:59AM ET
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Really complete interface, hours of fun, but the adds....
MuraliKrishna Brahmandam
MuraliKrishna Brahmandam Jun 05, 2020 12:31PM ET
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in the way of gold bug's nightmare $1000, bonds will do it for them nicely
waheed khan
waheed khan Jun 05, 2020 12:04PM ET
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barani krishna u r great
Galaya nanao
Galaya nanao Jun 05, 2020 12:01PM ET
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he say 1800 now 16xx i think yha 1800 but 1200 first
Barani Krishnan
Barani Krishnan Jun 05, 2020 12:01PM ET
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This has been one of the most volatile assets over the past few months and to its credit, it's still in the positive for the year. The race for stimulus money is one of the things that got both gold and stocks entangled, and no one can deny that. By the way, the $1,800 forecast is from traders who did not anticipate the job gains for May. With all due respect, even Trump didn't and seemed shocked, though he's basking in those numbers as anyone in his position would. Go do some reading, then come back if you have some valid criticism.
Haresh Chandwani
Haresh Chandwani Jun 05, 2020 12:01PM ET
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You are right. I caught those numbers and wrote immensely on that post.. Trump obviously must have gotten stump.. nobody was spared.. THOSE NUMBERS ARE A BLUNDER.. THOSE ANALYSTS NEED TO BE FIRED ASAP.Someone needs to make BIG CLARIFICATIONS..Those will come anyway when time comes.
hamid afridi
hamid afridi Jun 05, 2020 11:19AM ET
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how much the gold spot fall down and when it will pull back higher?
Master Mind
Master Mind Jun 05, 2020 11:19AM ET
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the hard truth is it might not pull back anytime soon
Biosalt Lda
Biosalt Lda Jun 05, 2020 11:07AM ET
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You are always wrong regarding gold...and I dont even know where to start to explain you about the logic and patterns of PM...
Barani Krishnan
Barani Krishnan Jun 05, 2020 11:07AM ET
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Biosalt, as I told Nate Johnson below, gold hasn't collapsed and neither rocketed because of my predictions. My job is to list out all the variables in the market and let people make their own decisions. Go read my stories and you'll find an attribution.for every pertinent paragraph to an expert. I NEVER make any of these calls because I leave it to those experts who have been doing them for years. So, it's easy to pick someone like me for a target when as an investor/reader, you're supposed to be doing your homework. And for the record, the experts I quoted on oil through last year and until April were correct 90% of the time. That's a great -- not for me but for those people. Learn to respect them, even if you don't have the heart to show respect for the work that we at Investing do.
Anthony Listor
Anthony Listor Jun 05, 2020 11:01AM ET
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gold hedges inflation.... not stocks
Nicholas Moniker
Nicholas Moniker Jun 05, 2020 11:01AM ET
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Unless we enter insolvency phase...
John Hamlett
John Hamlett Jun 05, 2020 10:40AM ET
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Anyone have a source where you can buy physical gold for a fixed % over spot?  Was hoping a drop like this could lead to pickup some more, but the spread has just gotten wider.  The physical price isn't budging.  Does it make any sense at all to anyone that the price of gold isn't the price of gold?
Alex Malmstrom
BrassTacks1 Jun 05, 2020 10:14AM ET
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Do I smell gold bulls on the grill? lol!
Jose Emenis
Jose Emenis Jun 05, 2020 10:14AM ET
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The American people are getting grilled by the Trump Regime... sigh...
Alex Malmstrom
BrassTacks1 Jun 05, 2020 10:14AM ET
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Jose Emenis  You're confusing Trump with Obama, mate!
Nate Johnson
Nate Johnson Jun 05, 2020 10:05AM ET
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Your analysis regarding gold has mostly been wrong. Day after day, week after week, month after month... But I notice how when gold goes the opposite way of your prediction you fail to mention it in your next article. Where you bring up another topic like oil etc. I hope they don't pay you for these articles. Because I'm certain many people have lost a lot of money because of your incorrect analysis of the gold market.
Barani Krishnan
Barani Krishnan Jun 05, 2020 10:05AM ET
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Nate Johnson, respectfully, gold hasn't collapsed and neither rocketed because of my predictions. My job is to list out all the variables in the market and let people make their own decisions. Go read my stories and you'll find an attribution.for every pertinent paragraph to an expert. I NEVER make any of these calls because I leave it to those experts who have been doing them for years. So, it's easy to pick someone like me for a target when as an investor/reader, you're supposed to be doing your homework. And for the record, the experts I quoted on oil through last year and until April were correct 90% of the time. That's a great -- not for me but for those people. Learn to respect them, even if you don't have the heart to show respect for the work that we at Investing do.
Barani Krishnan
Barani Krishnan Jun 05, 2020 9:45AM ET
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Well, the May jobs numbers seem to have changed the narrative once again for gold (this analysis was published well before those numbers), and it looks like clambering back above $1,700 could be a challenge now.
Jose Emenis
Jose Emenis Jun 05, 2020 9:41AM ET
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Trump's suprise unemployment number sounds like a bigger lie than Bush's WMD in Iraq lie...
Saeed Zamanizadh
Saeed Zamanizadh Jun 05, 2020 9:16AM ET
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Hi, if there is anyone in this field who can help me, what should I do?
Jose Emenis
Jose Emenis Jun 05, 2020 8:58AM ET
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Wall Street wants Trump to be re-elected in 2020 because he gives them $10-20 trillion taxpayer dollars every year with no strings attached...
Kostas Tsolis
Kostas Tsolis Jun 05, 2020 8:12AM ET
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All indicators for gold showing lower price since yesterday. If not close slight higher today seems we will have drop next week
Kostas Tsolis
Kostas Tsolis Jun 05, 2020 8:12AM ET
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Seems that comes true... I think we see gold back to 1600
Henk Drenth
HenkfromHolland Jun 05, 2020 6:02AM ET
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Patience is a virtue, just sit and wait for the higher regions. They will come for sure.And I expect silver to raise even faster.
Barani Krishnan
Barani Krishnan Jun 05, 2020 6:02AM ET
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True. Gold bugs have been mostly patient. Many have been holding long positions for years.
Kristof Naessens
Kristof Naessens Jun 05, 2020 5:42AM ET
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Makes sense. Markets nearly back at all time highs. 20M+ unemployed, foreclosures, bankrupcies... Fed balance sheet has ballooned to $7.165 trillion, an increase of another $67.9B over last week, which, btw, is still on a $3.5 trillion annualized pace on its own. The Fed has increased its balance sheet by 90% since last August 2019. They are nuts & reckless. Fundamentals are dead, complete dislocation between stock markets & economy. And don't start with markets are forward looking, markets didn't see nothing coming.
Barani Krishnan
Barani Krishnan Jun 05, 2020 5:42AM ET
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I'm as astounded as you are, Kristof. Thanks for the laundry list here. The disconnect is truly bizarre. And oil -- the only market showing some semblance of fundamentals in the earlier part of the pandemic -- has turned just as insane as Wall Street now, rallying without a legitimate cause.
Haresh Chandwani
Haresh Chandwani Jun 05, 2020 5:42AM ET
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Well, oil price is a manipulated entity.. Its not the demand but deliberate production cuts as demanded by trump, that are propping it up.
Heine Pedersen
Heine Pedersen Jun 05, 2020 5:15AM ET
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According to those, that you can see on CME groups website, gold will go below 1700 again today..
Barani Krishnan
Barani Krishnan Jun 05, 2020 5:15AM ET
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We'll have to see. I'm not surprised given the artificial strength on Wall Street that everyone is celebrating.
Heine Pedersen
Heine Pedersen Jun 05, 2020 5:15AM ET
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Puts down to 1685 were bought.. And we're there now.
Heine Pedersen
Heine Pedersen Jun 05, 2020 5:05AM ET
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Risk on is only fuelled by Fed money right now. And it's also Fed money keeping gold down, thanks to those banks on Wall Street that are too big to fail. Gold shouldn't correlate with the stock market like it does now. It should correlate with the real economy and the dollar. Like it normally does. If you wanna know where the gold price goes, just follow what's going on with options on futures contracts. That's what drive the gold price right now.
Barani Krishnan
Barani Krishnan Jun 05, 2020 5:05AM ET
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Absolutely true, Heine. Gold should have cracked $1,800 months ago, right after the Fed brought out its bazooka.
 
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