The fundamental case for gold has been strong for some time, in part because the current bull market, one of history’s longest, is overvalued by any reliable metric. Also, a variety of macroeconomic factors have conspired to create a positive climate for gold, including fears that an almost-incomprehensible amount of global debt will become unmanageable and push investors, companies and governments into the abyss when interest rates climb in earnest. It is for this reason and many others that central banks have been stocking up on gold at a rate unseen for years.
As fundamentals have improved the outlook for gold, the price has responded. Gold has appreciated 12% since last August, while the S&P 500 has dropped 2% over the same period. Despite the significant return already realized, gold is expected to keep moving higher from here, as the conditions supporting the fundamental case for its strengthening become more robust.
It’s not just fundamentals that paint an optimistic picture of gold, however. A number of technical analysts are suggesting gold’s price action is laying the groundwork for a possible burst in the metal’s value that could far outsize some of the more modest performance predictions. With this positive technical data complementing the substantial fundamental data that has been calling gold a “buy,” it’s a mystery why investors would look past the yellow metal.
Gold’s Price Action Points to Big Possibilities
In a recent article on his website Mish Talk, global economic trend analyst Mike Shedlock noted gold’s repeated attempts over the last five years to break through resistance in the $1,370 to $1,390 per-ounce price range (see chart below showing movement of monthly gold prices since 2003). He also recognized that the support level (the lows) continue to trend higher.
Gold’s price action since 2013, as shown in the chart, suggests an ascending triangle, which is seen as a bullish pattern. What makes it bullish? The fact that each time selling takes hold at resistance – the upper trend line – the subsequent downward momentum is less robust. In other words, each time investors sell, they don’t do so with the same strength as they did previously. That momentum pattern telegraphs the possibility that the price is getting ready to finally break above resistance.
If that happens, where does the price of gold go from here? Shedlock sees no additional resistance until $1,798 per ounce, a price last reached in 2012. Bob Kirtley of Seeking Alpha thinks the price could test $1,900 per ounce, the high reached in 2011 toward the end of the global financial crisis. And Taki Tsaklanos of Investing Haven believes that if the price of gold can push above $1,375 per ounce, it will certainly see $1,550. Even if investors realize “only” Tsaklanos’ $1,550 per-ounce price, that represents an 18% increase over the current price; factoring in the 12% gain realized over the last six months, that would represent a 30% total move higher in the price of gold from last August.
As the Case for Gold Improves, Investors Must Be Willing to Seize the Opportunity
We have talked for some time about the improving climate for precious metals, and we’ve witnessed a substantial increase in gold’s price over the past year. Now it appears the rise in gold prices may be just beginning. We are seeing mounting fundamental and technical factors that point to a vigorous upside for gold through the near term.
However, despite all of the warning signs about mainstream capital markets and indicators that gold may be just getting started on a run, investors don’t seem to be gripped by the same “fear of missing out” that often motivates stock market buying when equities are roaring.
In this case, gold has jumped 12% over the past six months while the market has dropped, and there are plenty of reasons to believe it will continue moving higher while the stock market continues to sputter. But where is the “buzz” about gold investing?
There’s no tidal wave of individual investor interest in gold the way there certainly would be if equities jumped 12% in just a half-year and were predicted to move even higher.
In my opinion, this lack of enthusiasm has a lot to do with how investors are “trained” by the media, by financial advisors and by America’s financial culture. For a wide variety of reasons, the U.S. has become characterized by an equities culture that essentially requires individuals to limit their investment options to paper assets.
Embracing this worldview on investing means investors not only risk missing out but are often guaranteed they will miss out on opportunities such as gold that exist outside of equities.
So, the challenge for investors immersed in equities is to fight through the cultural bias that causes them to see their portfolio only in terms of stocks and proceed to other assets – such as gold – when there’s ample evidence to support doing so. That kind of change might take some resolve, but the rewards just may include vastly improved portfolio performance.
Are you someone who recognizes solid prospects for gold but still suffers from an equities bias that prevents you from moving forward with metals – even though so many indicators suggest gold prices could be rising soon? Maybe you aren’t comfortable investing in gold because you feel you don’t know quite enough about it. If that’s the case, please call Augusta Precious Metals at 855-242-4121 and speak with one of our knowledgeable and helpful gold and silver professionals. They can help clarify for you all of the reasons gold and silver are smart additions to a portfolio, and also help you understand the unique advantages of investing in precious metals inside of an IRA. Let Augusta help you help yourself – call today.