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Could Gold Be a Buy?

Apr 18, 2019
Could Gold Be A Buy?

The gold market has once again failed to extend an upside rally in recent weeks and has since seen some significant selling pressure come into the market. Last Thursday, gold saw declines of almost $20 per-ounce as the FOMO (Fear of Missing Out) rally in stocks took center stage and risk appetite strengthened.

As the U.S. and China seemingly get closer to reaching an agreement over trade, stocks could potentially challenge previous all-time highs. Fresh highs for stocks could pressure gold and other alternative asset classes but may also potentially set the stage for a long-term buying opportunity.

After failing to take out previous resistance in the $1,340 region back in February, the market sank rapidly down to support in the $1280 region. Spot prices quickly rebounded, however, and shot back up to the $1,320 region before faltering once again. The market now finds itself on its heels once again, and support in the $1280 area could potentially give way to a fresh leg lower in price. The market’s 200-day moving average comes in around the $1,250 level and could act as a magnet for price before willing buyers are found again. If that region does not hold, the market could see prices as low as $1200/oz before bottoming out.

The lack of upside follow-through has frustrated gold bugs and has perplexed some market-watchers. The gold market may simply need more time to allow for specific market dynamics such as massive fiscal deficits and weaker currency values to take center stage. Investing or speculating in the gold market may not be a short-term play but rather a long-term bet on the health of the global economy and U.S. dollar.

In the meantime, another significant leg lower for gold could potentially prove to be an excellent long-term value. Recent market tailwinds provided by tax cuts and government spending could begin to fade in the months and quarters ahead. Not only that, but an increasingly-dovish Federal Reserve could fuel declines in the dollar as it holds rates steady or is even forced to start cutting again.

Although the stock market could still have something left in the tank, it is likely only a matter of time before the decade-long bull market concludes. As the risks for global recession rise further, a major stock market reversal could potentially be approaching. The gold market has already shown it can rise despite a stronger dollar but falling equities and a major shift in investor sentiment may hold the keys to higher gold in the months ahead.

At Straits Financial, we aim to keep our brokers and customers informed of current trade data and potential opportunities that may present themselves in the futures and options markets through technical analysis, market commentary, and options information. Get our strategy reports every morning from Applied Research here or the post market commentary daily here.

DISCLAIMER: This document is issued for information purposes only. This document is not intended, and should not under any circumstances to be construed as an offer or solicitation to buy or sell, nor financial advice or recommendation in relation to any capital market product. All the information contained herein is based on publicly available information and has been obtained from sources that Straits Financial believes to be reliable and correct at the time of publishing this document. Straits Financial will not be liable for any loss or damage of any kind (whether direct, indirect or consequential losses or other economic loss of any kind) suffered due to any omission, error, inaccuracy, incompleteness, or otherwise, any reliance on such information. Trading commodity futures and options products presents a high degree of risk, and losses in excess of your initial investment may occur. Past performance or historical record of futures contracts, derivatives contracts, and commodities is not indicative of the future performance. The information in this document is subject to change without notice.  The impact on market prices due to seasonal or market cycles and current news events may already be reflected in market prices.