The Bullish Case for GOLD

July 15, 2023No Comments


What I want to talk about is gold’s relationship to the US dollar, because this is one of the times that you will tend to find gold do well, and that is when the US dollar is underperforming world currencies and that is what’s happening. So I’m going to show you a chart with the relationship between gold and the US dollar. And what I want you to notice is that they do tend to be negatively correlated most of the time. In fact, at the bottom of the chart, you’ll see a correlation line and most of the time you’ll see that line is closer to negative one. Sometimes it does pop up. You’ll see that it sometimes moves into a more positive relationship, but it spends the vast majority of its time suggesting a negative correlation between the two.

So if we feel that the US dollar is going to remain sideways, which you can see on the chart that the US dollar has in fact been kind of going nowhere. If you feel that the US dollar doesn’t have a lot of upside in the near term, especially as interest rate tightening begins to slow down by the Fed, then you might want to think that gold will outperform. So I want to then take a look at the next chart, which is seasonality and that would be another argument to look at gold. You can see that there’s kind of two periods of time when gold tends to outperform. And that is in the beginning of the year, so January, February type of period, and then it again July through to September. That tends to be the big season for gold that had traditionally been because of the East Indian Asian tradition of gift giving of gold.

Now whether that continues to drive it during those months or not, I don’t know, but sometimes things happen just because they happen. In other words, it becomes self-fulfilling prophecy. And so gold does tend to have a little bit of strength between now, I’m recording this mid-July, and September. So seasonally we do have another reason to consider gold, not just the US dollar relationship. Next thing I want to talk about though is I want to talk about the producers and you’ll see that the producers are right now underperforming bullion. Producers, meaning the miners and whatnot, and this would include miners that do other types of precious metals, but majority of the miners that dig up gold, these guys have not moved with gold. You’ll see on the next chart that gold has been trading around its high.

That has been challenged way back, I think it was in 2020. So gold was challenged back in 2020, and pricing has fallen a couple times since then, but it’s once again challenging the highs of 2020 and that is obviously a very strong resistance point. Meanwhile, the producers are not challenging their highs. So you’ll see that on the chart following bullion, and you can see that perhaps there’s a reason to expect that the discrepancy between the producers and bullion might close. In other words, producers could catch up in their relative performance to gold bullion. So let’s take a look at the gold chart and you’ll see that it in fact is trading near its major resistance level. Now the gold producers chart and you’ll see that they’ve got about a 30% upside before they hit their upper end or resistance levels.

So my thoughts are that gold itself has some reason to rise, but more importantly, the producers in particular, are a pretty good place to be. I always put my money where my mouth is. Craig and I just began moving a little bit into gold producers in the past week or so. So we’ll continue this so long as the producers bounce and continue moving up over their seasonal period. But I think it’s a good idea for someone looking for an alternative to the rather crazy look of the S&P 500 and the tech sector in particular. There are other sectors that are a little bit overlooked, and I think that gold has enough evidence behind it that you might want to take a look at that sector and in particular, the producers.

 

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