It’s not just James Bond’s nemesis Goldfinger who love gold

May 23, 2022No Comments

Hello, and welcome once again to the Smart Money, Dumb Money Show. And I am your host, Keith Richards. Unlike last week where I recorded from my cottage in, I think, a hoodie, I’m back to the bow tie and I’m back to recording in my office. So today we’re going to talk about a simple subject, which is the outlook for gold. And to give you the punchline before the joke, so to speak, I want to tell you upfront that we at ValueTrend have been buying gold. We like the position, and we think it’s not just a defensive position for the current market environment, but it’s got some pretty good upside potential. So let’s get right to the gold chart. And then we’re going compare that gold chart to the equities, the producers, to see if one should focus on the commodity itself through maybe a material ETF that links directly to the price of spot gold or some sort of futures contract or should one trade the producers.

Let’s take a look. I’m going share screen. I’m going go right to the chart. Okay. So what you have on your screen here is, and I will roll down so you can see the different indicators, but this is the spot gold chart and it’s a weekly chart, continuous contract. And you can see I’ve drawn a trend line here and you can see, even though it’s fallen recently, it’s within a rising trend line. This is not a broken chart. This is a correction within a gently sloping up trend. Now I’m gonna skip right down to the bottom before we go to the closer look. But I wanna show you that even though it’s declined recently, the price, this is the accumulation distribution line, and this is measuring money flow. How much money is going into gold bullion? And you can see it has been rising. So even with the recent pullback the flow into gold has not been that curtailed. You can also see this is the MACD indicator. Now the MACD measures the space between two moving averages, a longer moving average and a shorter moving average. Because moving averages move slower, MACD is a very good long-term momentum indicator. It’s measuring the width between the two moving averages themselves.


So even though moving averages are trend indicators, the MACD is a momentum indicator. Now you can see that the market for MACD has been rising. So even though we have a bit of a bearish crossover and move there, the general trend is up, and it’s done a few of these crossovers. As you can see, even here, when it was rising, you would get the odd bearish move down on MACD. So even here, look at the trend was up. It would do an occasional pullback and break below the zero line, but it was still plenty bullish so long as the trend on MACD is up. So the trend on MACD is up that indicates that the story, unless that trend breaks, is positive, it’s bullish. Now, the next thing I wanna look at is a comparative relative strength line versus the S&P 500.


And you can see because the S&P 500 has fallen out of bed quite a bit. Even with the small decline on gold bullion, you can see that it is very easily outperforming the S&P 500. When this line is going up, that means it’s outperforming the S&P 500. Finally, down to the nitty gritty, this is the RSI, which is kind of a midterm oscillator. It’s not yet completely oversold, but often it doesn’t get that low. As you can see here it very rarely makes it to the oversold line. It did way back here when gold dipped back in 2018, but generally speaking somewhere, instead of waiting for the 30 line, somewhere around 40 or so, which is where it is right now, tends to be a good point where you’ll see it start to hook up and stochastics as well.


It’s getting into that oversold area. So we have some possibilities that gold as a good long term picture, especially against the S&P 500. So it’s clearly something I would rather own than own the stock indexes right now. And maybe this dip down to the trend line is a buying opportunity on gold. As I said, I will disclose that we have been buying it. We like gold. And we continue to like the position. Now, I’m going to now take a look at the chart of gold, which is the black line, like the bullion versus this red line, which is the producers. And I’m just using the Canadian S&P, sorry iShares S&P gold producers ETF. That’s a mouthful. And what you can see is they do tend to move in sync. So in case somebody’s wondering, well, you know, sometimes producers don’t move in the same direction as the underlying commodity.


Well, in this case, gold and the producers do tend to move relatively in sync with each other. And in fact, that statement is backed up down here. This is a correlation line. So how well correlated these two securities are. How does the continuous contract of gold bullion perform against the XGD iShares gold producer index and ETF, I should say. And you can see that so long as it remains above this line. This is the zero line, meaning it’s not correlated. It’s not negatively correlated. It’s not positively correlated, but the higher it is along this scale approaching one, which is a perfect correlation, 100% of the time they move in lockstep if it was a 1.00. Well, what you see here is that generally speaking, the correlation line is anywhere between 75 to 100% correlated with the, that is the shares of the stocks are very, very, very highly correlated between 75 to 100% of the time with the bullion itself.


So if you like the chart of bullion, like the way I do, then you basically gotta like the look of the producers. Now it could change. It changed in 2018 when it took that big spanking back when everybody hated gold. But it’s definitely been a couple of good years, even in fact, three to four years of very correlated performance between the producers and gold bullion. So my thoughts are that whether you like the producers or to buy bullion itself, it’s not a bad position for portfolio. Now, I just want to emphasize that when one looks at something like gold, you don’t, there are people out there that we often refer to them as gold bugs. You know, these people, they love gold no matter what it does. It goes down and it goes up. They think it’s going to replace, you know, fiat currency.


It’s not likely, if anything, you know, there’s talk of electronic, you know, crypto-type currency, replacing fiat currency someday. I won’t get into that subject. It’s not my area of expertise. But what I will say is that you don’t want to load your portfolio with anything, including gold. So even though I like gold and I’m disclosing, I have a position, and I think it’s not a bad thing to have in your portfolio. You know, you gotta allocate the percentage that you’re comfortable with because it’s still a commodity and it could still fall out of bed just like any other position could fall. A look of people thought about the growth stocks, the FANGS Facebook, apple, Netflix, all of them, Google. Well, they’d fallen out of bed and they were the only place to be.


And now they’re the only place you don’t wanna be. So things can change. Don’t go overweight in anything. But at this moment, I am trying to present a case that gold probably has some potential for upside. Now hey, if it breaks that trend line we were just looking at, that means it’s broken and that means you have to get out. So you have to have an exit story. You can’t fall in love with the story. Just because you like the idea of holding gold as a hedge, it doesn’t matter if the chart breaks down. So watch that trend line, watch what MACD is doing. That’s the other thing I’m looking at. For the time being, I think gold is in a good position. I don’t much care for the stock market. If you read my blogs, you know, that I think we’re in a bear market and will be for at least a number of months to go. So with that in mind, we need to look for alternatives and gold could be one of those alternatives that can correlate differently from the stock market. Thanks for watching. I hope that made some sense and we’ll be back next week with more material for stimulating your cranial vault. Have a good day happy trading.


Never miss another video!

Get Smart Money Dumb Money videos delivered directly to your inbox.

Recent Posts

Screenshot 2024-07-14 061620

Finding the Next Winning Stocks

Screenshot 2024-06-18 060339

If things are so great for the market, then how come…

Screenshot 2024-06-14 181357

Canadian Western Bank Stocks

Larry McDonald Interview

An Interview with Larry McDonald of BearTraps

Screenshot 2024-05-30 035716

Opportunity in Bonds – Canadian bonds and more

Screenshot 2024-05-24 081148

Emerging Markets ETFs – Time to Buy

Keith's on Demand Technical Analysis course is now available

Scroll to Top