Published on 21 April 2017
zealllc.com / Adam Hamilton / April 21, 2017
Gold’s young upleg just enjoyed a major upside breakout, bolstering strong technicals and heralding a coming Golden Cross buy signal. Investors have started aggressively buying gold again after record-high stock markets distracted them. This gold upleg’s upside momentum is really building, portending accelerating gains in coming months. Yet sentiment remains poor, with traders still quite bearish on gold.
Virtually no one is excited about gold these days. Mainstream investors continue to ignore it like usual, while contrarians largely expect a lackluster sideways grind at best. This apathy is the natural result of gold’s recent consolidation between late February and mid-April. With 6+ weeks seeing no net progress, there was little to spark any enthusiasm. Thus gold gradually faded from speculators’ and investors’ radars.
That’s exactly why consolidations and corrections exist, to rebalance sentiment. At preceding interim highs, greed grows too intense to be sustainable. So subsequent drifts or selloffs bleed off this greed, replacing it with apathy or fear. That forces out most marginal traders, paving the way for the next major rally higher. That looks to have started just over a week ago in gold, as evidenced by multiple indicators.
Gold just surged to a major technical breakout above its key 200-day moving average, which greatly strengthens its latest uptrend. Technically-oriented traders carefully watch price action relative to this most important of moving averages. 200dma breakouts following correction-magnitude selloffs are powerful buy signals. So funds have already started moving serious capital back into gold since that breakout.
Gold’s technicals and fundamentals are both very bullish, contrary to the lingering bearish sentiment still dogging this metal. Let’s start on the price-action side, since that is kindling investment demand. This first chart simply looks at gold along with its key moving averages during its young bull market birthed near the end of 2015. Gold is now in this bull’s second major upleg, and momentum is really building.
The day after the Fed’s first rate hike in 9.5 years in mid-December 2015, gold plunged to a brutal 6.1-year secular low. Everyone thought gold was doomed, convinced a zero-yielding asset simply couldn’t compete in a higher-rate environment. Yet as I discussed a few trading days before that initial Fed rate hike, gold actually thrives in Fed-rate-hike cycles historically! Gold’s young bull since again proves this out.
Gold started surging in mid-January 2016 as the US stock markets rolled over into their worst selloff in 4.4 years, a mere 13.3% correction in benchmark S&P 500 terms. Then in early February gold broke above its 200dma decisively, like it just did again in April 2017. That critical technical breakout sparked major buying by speculators and investors alike, catapulting gold across that formal +20% new-bull threshold.
That first major upleg of gold’s new bull had ups and downs, like all bull-market uplegs. A hawkish Fed crushed gold last May, but then a major miss on monthly US jobs followed by the UK’s surprise pro-Brexit vote blasted gold back up. Ultimately this metal surged 29.9% higher in just 6.7 months after being left for dead right after the rate hikes started! But that left it very overbought, drenched in greedy sentiment.
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