Ok, I’m seeing more commercials for gold bars and coins, so I think it’s time to touch base on gold again.
The Bloomberg Gold Subindex (Total Return) is up over 34% year-to-date as of 10/30/31, so gold-related companies getting on the commercial bandwagon now again to sell past performance to retail investors is not a surprise. Unfortunate, but not a surprise.
Here is the performance of gold relative to the S&P 500 and NASDAQ 100 Index. Not too shabby for gold investors.
Too bad the gold commercials weren’t as strong when gold did nothing for years. You can probably tell I get annoyed by these types of sales tactics.
Revisiting Gold Technicals
Almost a year ago, I wrote about the potential upside for gold, due to fundamentals and the formation of a potential technical breakout higher. As mentioned multiple times, gold seems to move for different reasons at different times. I don’t want to rehash that here, so feel free to revisit my previous posts on gold.
- Quick Look: Gold November 28, 2023
- Gold Prices – Reasons Change October 5, 2022
In my last post on gold in November 2023, gold appeared that it could rally just based on a potential upside breakout of a long-term trading range. Here’s the chart from my post last November…
Fast forward to the chart today, October 31, 2024 (ooohhhh, it’s Halloween!)…
As you can see, there was a technical price breakout, where gold sustained above the long-term trading range resistance level, and quickly moved sharply higher. This breakout higher in gold started to take place in February/March of this year, so a couple of months after my November 2023 post.
FYI – The difference between this chart and the chart last November is that this one is based on price changes on a weekly basis. I needed the image bigger, but it also shows how a 200-week moving average (red line) also acted as support last year, and bouncing higher from there. Again, squiggly lines can move the markets.
On technical breakouts…
Think of a plane getting off the runway flying higher for a while but ultimately hitting some turbulence. The plane wants to go higher, but it needs to fight through turbulence to get higher and reach clear skies. Sometimes the plane gets close to getting above the clouds, but then it hits an air pocket and gets slammed back down. That’s the technical resistance. There are clear skies above the current turbulent altitude but it might take a while to get there.
After a while of bouncing around, there is enough speed and push to get above the turbulence and finally break through the clouds and reach the calm, clear skies above. Once above the turbulence, the plane climbs higher quickly without issue.
So let’s take the analogy to gold. Gold is the plane, as you can probably guess. Gold was in a multi-year turbulent period, flopping around from 2013-2019, hitting technical resistance levels and not reaching new highs. After enough push and time, gold finally broke through the clouds in 2019, hit the clear skies and rallied higher for over a year until August 2020. Then turbulence struck again. Gold, the plane, rode the turbulence and chopped around for a few years until this February/March, when it broke through the clouds again, hit the clear skies, and rallied higher.
Gold in the Media
Now that the breakout has occurred, and gold has rallied a ton year-to-date, of course I’m seeing more headlines about the gold rally. It’s on investment media but now on traditional media and commercials as well.
It never fails. When an investment is doing well, the news picks it up, more people are attracted to it, more people put money in it and the price keeps pushing higher. This is called momentum. Read my previous post Quick Look: Gold where I mention the potential heavier media attention from a breakout rally and investors chasing gold higher. I think we might be in that phase now.
Final Note
I don’t have high conviction of what gold might do from here. Gold doesn’t generate cash flow or earnings on its own, so I don’t have a great opinion on whether gold might be expensive, cheap or what will drive the price higher or lower in the short-term from a fundamental perspective. In my opinion, more often than not, gold prices just might move on technicals (support, resistance and breakouts – up or down) rather than fundamentals. Read my post Gold Prices – Reasons Change on that opinion.
I’m not a momentum technical trader, although I pay attention to it, so trying to trade gold technicals isn’t my cup of tea. I’d rather invest in quality assets that generate revenues, earnings and cash flow instead. To each their own, it’s totally ok.
Don’t just assume gold is rallying for any particular fundamental reason (too much U.S. debt, asset hedge, currency hedge, inflation, China central bank buying, it’s the oldest currency, etc.). Maybe it was just a technical breakout higher that may hit some multi-year turbulence at some point.
With the gold commercials increasing, and gold’s breakout already occurred with a nice rally higher, all I can say is make sure you know what you’re doing with gold and always have your own personal conviction in your investments. At least at a minimum, remember the prior two periods of gold turbulence that lasted 6 years (2013-2019) and 4 years (2020-2024) of no new highs in gold.
If at some point gold stalls, chops around in turbulence for years, and enough people with less conviction in gold give up on it due to lack of new highs, maybe that sets it up for a new breakout higher from there and the very long-term trend higher in gold could continue. Time will tell.
That’s it on gold. Based on the timing of this post and my prior two posts on gold, it seems like I like to write about gold in October and November each year, so maybe we’ll touch base on it again around the same time next year.
Same time, same Kulwicki channel!