Watch Gold

Published on: August 14th, 2017

Even a relatively small re-allocation to gold and away from other assets by the market, could make this “currency” zoom.

Comments

  • WD
    Wim D.
    8 October 2017 @ 14:36
    Friday's breakout looks promising - I am in ;-).
  • AD
    Alexander D.
    31 August 2017 @ 20:42
    Julian, I understand you don't like to make specific trade recommendations, but if you were to consider an option play, what time horizon would you focus on for the option expiration to maximize the anticipated move up in GDX? Thanks, Alex
  • BT
    Bryan T.
    28 August 2017 @ 11:27
    Good piece Julian references to physical gold beg the question do you have a recommended source for purchase and storage of bullion? Thank you.
    • JB
      Julian B. | Contributor
      29 August 2017 @ 17:01
      Hi Jake. The best person on this is Raoul and he thinks Gold Billion International are top notch. Hope that helps?
  • RH
    Robert H.
    29 August 2017 @ 07:26
    Gold up, eur/usd up, eur/gbp up, and oil rolling over. So that's the year's subscription paid for. Thanks chaps.
  • DG
    Don G.
    19 August 2017 @ 17:01
    Did anyone notice $OEXA200R hit 65 on Friday? Could this be a trigger to rotate into cash / gold?
  • JB
    Julian B. | Contributor
    18 August 2017 @ 14:17
    Gold Comments First of all, thank you all for your interesting and provocative comments. I have a handful of observations which I hope will clarify my angle on this subject without going into excessive detail. Firstly, I started off my career trading precious metals in the late 80’s for Philipp Brothers and while gold has a role in any portfolio, I have learnt over the years more than any other trading instrument it’s subject to emotion. For example, it is easy to wrap up precious metals in the current highly emotive discussion of the relative merits of crypto-currencies but it isn’t helpful when looking at the risk/reward of entering into a position. Hence, it is important to not approach logically as you would any other investment. What I am trying to get across here you can increase the odds of success if you can tick the following 3 boxes; 1. The macro backdrop is supportive 2. Flow of funds analysis suggests that the market isn’t already positions for the move and 3. The technical backdrop and charts look attractive. This was the approach we adopted in the Macro Insider piece and it is how we look at all trading opportunities. Therefore, while the current macro narrative for suddenly owning Gold (fear) is obviously heavily influenced by both North Korea and now Trump’s Charlottesville problems. The reality, we have been setting up for a catalytic event for 12 months already and the proximate cause is less relevant than recognising the technical picture with the tailwinds from the macro / geo-political and flow of funds backdrop we discussed. Regarding the exact trade setup, I am steering away from security specific recommendations because not all ideas suit all our readership. Thus, whether to use or not use options on ETFs needs to be a personal decision. At the time of writing the piece the set-up was close to breakout and gold’s nascent outperformance vs non-USD currencies was just that…nascent. A few days later, things are considerably more dynamic with gold bang on its major resistance vs USD, gold crosses performing and gold equity ratios also moving in favour of gold. In terms of GDX, if we break higher I have 2 targets in mind. The initial one is 31 but will likely prove hard to break. However, it is 30+% higher than here. So, it’s not a bad punt. My more optimistic target would be just below 38. Thus, position size and stop losses should be such that you can run with the break and create 4 or 5 to one pay-off given the speculative nature of this idea. There is of course a risk that mining equities fall with all equities but rotation should help mitigate too much of a wipe-out. This risk needs to be incorporated into your stop-loss thinking and trade size decisions. Similarly, physical Gold vs USD should have the energy to run about 10% or so if the scenario pans out after which we can review the trade from a position of strength.
  • PG
    Paul G.
    17 August 2017 @ 03:47
    Geopolitical concerns and Gold: I have been watching the NK/US stand-off with interest (I have family and friends in Japan) and the China/India stand-off. What strikes me (much as the Raoul pack showing striking correlation with 2000) is similarities with the Sino-India War (circa 59-62) and the Cuban Missile Crisis (and fact that was just post Korean War). I am about to make some bold assertions - for thought and discussion - I wonder if China is manipulating NK to be the aggressor (would fit the above factual matrix). Does China need a war (not letting on to markets that has dire concerns for economy for example which might topple The Party?) See's US at a weak point and considers it the perfect time to take advantage on a geopolitical front (South Sea?) . Has at least tacit support from Russia? I don't know the answer but I have been thinking along the lines of the above. Interested to hear views
  • SB
    S. B.
    14 August 2017 @ 13:58
    Gold has not really performed as well as you would expect considering the recent dollar weakness. Is there a specific explanation for this. Also, Bitcoin seems to be in the spotlight and gold is seen as an illiquid and outdated relic. This might change when/if the parabolic Bitcoin rise comes to an end, but when?
    • EK
      Emil K.
      14 August 2017 @ 19:15
      The relative liquidity of gold and bitcoin is beyond compare; gold clearly is more liquid. This is true at the financial market level and at the personal, anecdotal level. Yes, you could call it a relic. Or you could call it a time-tested, multicultural currency. Up until 40 years ago it would be notable to find a generation or a civilization that did not consider gold to be money. If these last two generations are wiser than the first several thousand to come before then gold is a relic. But I'm not willing to make that bet.
    • TM
      The-First-James M.
      14 August 2017 @ 19:31
      From what I'm seeing, Bitcoin (and Ether to a larger extent) is/are becoming a greed asset, rather than a fear asset. My partner reported to me today that she spotted a Crypto-Currency investment fund advert on the London Underground (featuring a basket of Bitcoin, Ethereum, Ripple and others). I will take a picture when I see it. I've also had friends and colleagues (IT techies and project managers) in Australia asking me how to buy it. My own holding is a free ride, and I intend to ride it a while longer (I am going to play the bubble rather than sell more too soon - have a target in mind I will definitely sell more at though). However, I am becoming concerned and am warning those asking me to be careful (only put in what you don't mind seeing get cut down by 50%+).
    • CS
      Carlos S.
      14 August 2017 @ 20:00
      Maybe eToro? https://www.reddit.com/r/Bitcoin/comments/6tll5m/spotted_bitcoin_on_the_london_underground/
    • SB
      S. B.
      15 August 2017 @ 10:08
      I also believe the Bitcoin price is currently mostly driven by greed. You only have to look at the parabolic move to see this will likely not be sustainable. Counter arguments are the larger market cap, large miner support and faster payments. This will create better fundamentals for true world applications, which will increase demand and so on. Why do governments not restrict the transfers of Bitcoin to the legacy fiat monetary system? The success of Bitcoin will probably prove the blockchain concept and make public acceptance easier when they will release their own digital currency? Maybe they are also afraid to be excluded, while the rest of the world moves on. I know Bitcoin will probably prove less liquid when prices collapse, but physical gold is inherently not suited for payments. Blockchain backed by gold could change that. I took substantial profits on more than 2/3 of my Ether and BTC, but I was too soon. I Wanted to buy lower but was left behind. I still hold gold and miners and had the crypto currencies as a hedge position.
    • IS
      Ian S.
      16 August 2017 @ 20:34
      "...physical gold is inherently not suited for payments." Goldmoney makes physical gold suitable for payments. They issue credit cards in various currencies that you can load up from your gold holding, and you can easily transfer gold from person to person: https://www.realvision.com/channel/realvision/videos/570e9999442f4eb7488b4567
  • CS
    C S.
    16 August 2017 @ 01:03
    The crypto hype vis a vis gold being a relic reminds me of the view of the Australia economy (old economy) vis a vis the US during Tech Mania (new ecomony) 1999. I see the faultline Julian describes running throughout the currency complex. Borderline breakouts galore. Of course, his argument is for a relative outperformance of gold (sagging of correlations). He has warned about a pullback in risk assets; and the risk that bonds and equities go in the same direction. There's a lot of cash looking for a home. Though my instinct based on recent performamce would be for gold (lets not make bones about it, we're talking paper for the most part, not the metal, and they are antitheses) to pull back too, at least initially, unless this relex fails and this paper looking for a home/safe harbour finds it in gold this time. And if gold bucks the risk off reflex this time, it wouldnt take much for big money traders to pile in and cause a reflexive spike. What else has wallowed for 6 years?
  • WE
    William E.
    15 August 2017 @ 17:01
    A fair, honest and I believe very accurate description of the situation. As always, many thanks Julian for your thoughts.
  • GM
    Gerald M.
    15 August 2017 @ 13:31
    This is a good informational piece but it does not give any trade recommendations (that surprised me). Both Julien and Raoul are experienced traders and I was hoping for some guidance on how to specifically set up a trade. There are a number of ways to play this idea but I'm sure that some are better than others. For example, I might buy calls on GDX but I'm not certain how far our and what strike makes sense. Also, trade management of those calls is an issue. I could buy GLD on the break and then set a stop at some point below the breakout (again, some idea of what Julian is doing with this trade would be most helpful). In short, is there a recommendation (like Raoul's Eurodollar trade) or is this just an FYI peice for now?
  • gg
    gurdeep g.
    14 August 2017 @ 13:44
    With the euro inflation prediction by Julian, I thought when it would be a good idea to allocate into gold. More reasons than one pointed out, excellent piece!
    • WD
      Wim D.
      15 August 2017 @ 12:02
      For sure id you live in Europe
  • SB
    S. B.
    15 August 2017 @ 10:18
    I think Gold needs more fear of monetary debasement to increase in value. That fear is a bit low at the moment. Inflationary fear will eventually increase with the return of a form of QE after inevitable problems in the overvalued equity market. I believe Geopolitical tensions must be more concrete, instead of being misused to explain a normal market correction in the current equity Bull market. Also, Julian, you argued for higher rates due to inflationary pressures. How does that impact the gold price?
  • TH
    Thomas H.
    14 August 2017 @ 23:00
    I wish the charts looked better. Gold as a trade has been very profitable since 12/15, not so much as an investment. The rise since 8/9 is due to Korea. I do not like to trade politics.
  • NH
    Neil H.
    14 August 2017 @ 14:15
    in the last macro insiders it sounded like you were prepared for the u.s. dollar to breakout to the upside, which might not be good for gold. can you explain how gold will rise if the dollar rises as well.
    • EK
      Emil K.
      14 August 2017 @ 19:06
      Perhaps because both currencies are considered safe harbors for your capital.
    • JL
      J L.
      14 August 2017 @ 19:16
      keep an eye on XAUJPY in this case
  • EO
    Emil O.
    14 August 2017 @ 18:07
    The long dollar, long gold trade idea appears to be taking shape and this might be a good entry point for both, given the recent discussions on insider talks. If it fails we should know pretty soon..
    • EK
      Emil K.
      14 August 2017 @ 19:01
      Wait a minute! There's another Emil subscribing to Macro Insiders? Fair enough. But two is where I draw the line. Don't let any others in. :-)
  • SV
    Steven V.
    14 August 2017 @ 18:43
    Very timely, thank you! I too have been watching this trade, but I'm somewhat concerned if the US Dollar rallies that gold (and the miners) will drop. I'm waiting for a breakout before jumping in.
  • LN
    Lance N.
    14 August 2017 @ 15:07
    Gold appears to be very correlated to the yen. To me that means that it is simply a fear asset.
  • JB
    Jason B.
    14 August 2017 @ 15:07
    Julian - Great article again. The connection to your previous notes and gold is very clear. Regarding the miners, do you think they would benefit from an overall correction, if it were to happen? Other words - Does anything specific cause you to be bullish on miners in a sea of overvalued equities? I can also see a year long descending triangle in the making. Best, Jason
  • RM
    R M.
    14 August 2017 @ 14:53
    Timely piece and I appreciate the commentary with price points. Like some of the other comments, I am puzzzled at why gold hasn't done better. Geopolitical risks are very high. Thoughts as to why gold has lagged lately? Thanks , realky enjoying this service. Please also look at the recent appearance of a breakout in China in future pieces.