Matovcik : 01/09/2017
Gold is showing decent strength going into the end of summer breaking above strong psychological and technical level of $1300 per ounce which can finally confirm the beginning of long-term bull market. At the same time, gold reached new highs for 2017.
There is no lack of fundamentals supporting the move upwards. But as gold traders got used to during recent years, the “fat fingers” smashing gold to the downside during ridiculous trading hours in low liquidity markets has no limits. So I always remember the old saying used by many long time traders, “Markets have the ability to stay irrational longer than our accounts solvent”.
Following are 13 main drivers of the coming long term precious metals bull cycle:
- Unlimited quantitative easing by all major central banks with no end in sight.
- Bond market long term bubble supported by artificially suppressed interest rates.
- Stock market bubble supported by easy money and stock buybacks.
- Geopolitical risks at the record high and still growing.
- Algorithmic trading systems accounting for the majority of liquidity in many important markets.
- Fake accounting of real losses in the banking system.
- Housing market bubble re-created by long-term interest rate suppression.
- The bankruptcy of many countries and states worldwide is slowed down only by central bank interventions in many markets.
- Central banks propping up the stock markets.
- Derivatives markets risk not addressed by any monetary institution.
- Lack of responsible behavior by many major world leaders.
- Media outlets spilling propaganda about the real state of affairs and economy.
- Crypto currency fans have the same motivations as precious metals investors.
The list can continue, but is sufficient to understand why many smart investors and families continually invest in precious metals for wealth preservation. With more debt and debased currency you can create nominal growth you like for a very long time but you just can’t replace wealth generation. This realization is probably the strongest factor that will be supporting the gold success story in the future.
But the shocking part is that I can’t see any real and honest efforts to resolve the above mentioned issues. So every year that we witness postponement of dealing with it, helps accumulate more pressure in the gold market. And we all know when the pendulum starts to move from one extreme, it almost never makes a stop in the middle but swings to another extreme. In western world, the wealth holders of today didn’t witness this situation for several decades.
Gold price technical picture
Gold is looking technically well positioned, having tried to break above the 200-day moving average 4 times this year. For the past 30 days, we were moving above all of the commonly watched averages, 50, 100 and 200-day moving average.
Also, we can see some most basic long term buy signals like the crossing of the 50 and 100 day moving averages above 200 MA. All of the averages were retested several times in the past few month so gold is free to move up.
$1300 level in gold marks the April and June top of the market and it is the price where we oscillated right before Donald Trump was elected in November 2016.
On 28th of April gold broke this important barrier. What is more important gold was able to reach $1325 and close the session above $1300 and hold there two consecutive session what may be a confirmation of true break-out. It is expected that there will be at least one if not more attempts to retest this level from above.