Valentine's Day Is Golden
The world’s ultimate asset, gold bullion, continues to act superbly. That’s because fundamental, cyclical, and technical price drivers are very positive and are in play at the same time.
This is the gold chart.
Gold is poised to burst upside from a small bull wedge pattern, after recoiling from $1250 area resistance.
Support sits at $1222, and testimony from Janet Yellen today along with key US retail data tomorrow could be the fundamental catalysts that launch gold’s next assault on that $1250 zone.
Experienced technicians understand that their charts only work when fundamentals are creating the technical picture they see on their charts.
In the case of the US dollar, most amateur technicians were very bullish on the dollar at the start of the year. They’ve essentially been crushed by “Trumpamentals”.
The bottom line: The fundamentals of the Trump administration are changing institutional liquidity flows from a safe haven orientation to a US economy risk-on orientation.
That’s very positive for gold, as a pick-up in Main Street (small business) business activity can be very inflationary. That’s because money velocity tends to accelerate quite dramatically when the pick-up gets underway.
This is the dollar versus franc chart.
The dollar has broken down from a head and shoulders top pattern. A textbook rally back towards the neckline is now in play.
Once that rally is completed, the dollar is likely to retest the recent lows, helping gold surge through the resistance at $1250.
This is the weekly gold chart.
While $1250 is acting as short to intermediate term resistance, gold seems poised to move even higher in the big picture, likely to about $1300.
Two key trend lines of resistance converge in the $1300 area, making that the next likely upside stop for gold above $1250.
That’s another look at the weekly chart for gold. Both the RSI and Stochastics oscillators are crossing above the 50 area. That tends to happen when upside momentum is increasing.
Also, note the highs in the $1306 - $1307 area. They are also likely to offer a profit booking opportunity for happy gold bugs soon!
It turns out that I’m not alone in my view that gold can rally to $1300. Dominic Schnider is a heavyweight economist at monster bank UBS, and he sees gold making a beeline for $1300 too!
Institutional money managers gain extra confidence when top economists recommend an asset class, and having Schnider “on side” with higher prices will certainly build that confidence.
Silver bugs should also feel confident right now.
That’s because silver is beginning to act with less volatility, and more like a slightly “jacked” version of gold! On rallies, silver is outperforming gold against the dollar, but not excessively so.
Modest outperformance by silver against gold tends to occur during long term uptrends. Wild outperformance tends to occur when the precious metal sector is ending a big uptrend. The current action in the silver market is ideal for investors.
As good as gold and silver bullion look, the stocks that mine these mighty metals look even better, as they typically do when economic growth and inflation come into synergistic play.
This is the GDX chart. Happy gold stock investors should wait for my $26 – $27.50 target zone before booking any more profits. That target may be achieved this week. Valentine’s Day is today, and may I suggest as a gift… something golden!
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