Gold breakout – Fundamentals & Market Converge

Last night was another strong night for gold and silver, up $21 (1.6%) and 28c (1.7%) respectively boosted by inflation fears and the USD resuming its fall.  Our 4 cryptos on offer also had a strong night, Bitcoin up 9.1%, Ethereum up 8.6%, Ripple up 11.6% and Litecoin on a tear, up 33.6% (interestingly our biggest seller yesterday was Litecoin…well done to those Ainslie investors!).  That one thing many are keeping a close eye on, 10 Year US Treasuries, continued their fall with the yield up over 2.9% as the market saw a hotter than expected inflation print (Headline CPI) of 2.1% versus 1.9% expected.  Bloomberg’s Richard Breslow put it well:

“If the fate of the stock market, and every other global asset for that matter, is so utterly sensitive to a handful of basis points either way on the 10-year Treasury, then it’s in an even bigger bubble than analysts are copping to. And we should cease and desist arguing fundamentals.” 

But let’s go back to fundamentals and listen to one of our favourite analysts, Greg Canavan from PPP.  Greg always comes from the angle that no one knows what’s going to happen and the best way to play a market is to mix fundamentals (which let’s face it are often up for interpretation) and market forces (which simply are what they are regardless of what ‘story’ you happen to believe in yourself).  In other words pick something that makes fundamental sense but don’t argue with the market… wait for it to give you the broader consensus of which story the masses believe. Greg turned bullish on gold last year and just yesterday updated his analysis and confirmed he believes we are on the cusp of a breakout.

The fundamentals?  Greg says: “commodities have held up well in the latest market selloff. That makes sense if we’re moving into a more inflationary investor mindset. It also makes me positive on the longer-term outlook for commodities and gold in particular.” 

On the market? Greg says: “Let’s look at gold in US dollars first. In my view, gold is readying for a big move higher. If the recent pullback to around US$1,310 an ounce holds, it will represent another ‘higher low’ on the chart. This is a positive and increases the chances of seeing another move towards the green resistance lines in the coming weeks.

And as I’ve said before, if gold breaks through there, we’re off to the races…”

And in AUD terms: “Gold priced in Aussie dollars supports this potential breakout view. The chart below is a weekly chart going back to 2014, when the bull market for gold in Aussie dollars got underway.  Since peaking in mid-2016, Aussie dollar gold has been correcting and consolidating. But as you can see, this consolidation pattern has nearly played out.

In the coming weeks or months, it is likely that the price will break out of this pattern one way or another. Given the prevailing upward trend, the odds favour an upward break.”

Greg’s not alone on the call for a commodities boom, we’ve discussed this previously here.  

Greg’s also not alone in singling out gold.  None other than the world’s largest hedge fund, Ray Dalio’s Bridgewater, continues to build its massive gold position.  Their latest disclosure to the SEC for the December quarter saw them increase their gold holdings in two of the world’s largest ETFs for the 4th straight quarter to 15.2m shares.  It will be interesting to see the results of this quarter as he this week revised his outlook to be much more bearish on the prospects for the economy, suggesting we are a lot further into the cycle than previously thought.  As each cycle ends in a crash he may well be buying up even more gold in readiness.