Gold Climbs Above $1,800 for the First Time Since 2011
Comment of the Day

June 30 2020

Commentary by Eoin Treacy

Gold Climbs Above $1,800 for the First Time Since 2011

This article by Justina Vasquez for Bloomberg may be of interest to subscribers. Here is a section:

Goldman Sachs Group Inc. said gold could climb to a record $2,000 an ounce over the next 12 months, while JPMorgan Chase & Co. recommended investors stick with bullion.

“The Fed is being extremely accommodative and because these shutdowns are starting to reoccur globally, more central bank measures are probably going to be initiated,” Phil Streible, chief market strategist at Blue Line Futures in Chicago, said by phone.

Eoin Treacy's view

Gold’s front month futures traded above $1800 today while the spot price has yet to achieve that goal. The difference between the short-term patterns may give us some insight into what is animating the market in the short term.

Spot Gold has been ranging mostly above the March peak since April. It popped on the upside last week and continues to extend the advance towards the psychological $1800.

The continuation chart for Comex futures exhibits some key differences. First off, it rebounded to test the $1700 level at the end of the March. Then it got right up to test the $1800 area. The ensuing range is more orderly and it has only just broken out.

No one transacts at the spot prices but it is the basis for many of the funds that attempt to track the gold price. Meanwhile anyone trading gold is doing so with futures. Open interest surged in 2019 and contracted meaningfully, until this week when it broke the sequence of lower rally highs.

The one thing we know about gold’s price action is it can be maddeningly boring for prolonged periods but when it breaks out it can really move. By the time everyone is falling over themselves to buy, it tends to pull back violently and challenges the confidence of even the most ardent bulls. That’s usually the best time to buy.

I believe that $1800 is an important psychological level for gold investors but a sustained breakout by the spot price will be required to enliven investor interest. However, it is worth remembering that gold offers some of the best examples of ranges being explosions waiting to happen. One of the big reasons people like trading gold is it is capable of big moves. It is for that reason I think having estimates of a 10% advance in 12 months are not particularly helpful.

The Gold Miners ETF is also on the cusp of completing its first step above the seven-year base formation.

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