Metals Pull Back, but Gold Looks Poised for a Break Out
After reaching $1,350 last week, gold hit some resistance this week, though it maintained its position over $1,350 to close out the week at approximately $1,325. However, gold looks poised for a break out for a few different reasons including an increasingly shaky dollar and stock market.
So why did gold pull back this week? There wasn’t initially a lot of rhetoric or any missile tests out of North Korea driving the safe haven demand as in recent weeks. However late Thursday another missile launch that flew over Japan spurred an upward move in gold again. A stock rally also mid-week kept metals lower.
What this means for investors: There are a number of economic warning signs flashing that indicate a future bullishness from gold. The fiscal year is going to close out next month with a deficit of approximately $750 billion. Retail and restaurant sales are stagnating with bankruptcies on track to exceed 2009 levels. Household savings levels are plunging while credit debt rises. Even the current stock euphoria has a dark side. Corporate stock buybacks and central bank easy money is a significant driving factor here, and those are not long-term sustaining.
Why Some Experts Say Gold Has Already Broken Out
Some experts are saying gold is already broken out and has a ways to climb before the end of the year. This week fund managers such as Ray Dalio are suggesting increased holdings in gold now in preparation. Jim Rogers stated a few weeks ago that he believes “gold will be explosive.” The U.S. has experienced economic problems ever four to eight years, so an imminent financial crisis it is not entirely unexpected, in his analysis.
What this means for investors: Because of the historic “boom and bust” economic cycle, gold will always mean long-term security. Metals go through similar cycles inversely to the economy. It looks like we are reaching that point again where gold is breaking out and the economic recovery is faltering. In addition, geopolitical fears are becoming an increasing source of fear pressure on the markets.
Bitcoin Plunge This Week and Gold
Bitcoin and cryptocurrency have been skyrocketing lately. There has been a lot of talk about whether bitcoin will continue its run and be a new safe haven for currency (as many of its buyers believe) or whether it is a bubble that is going to burst soon. Chase CEO Jamie Dimon and many other are predicting an imminent bitcoin crash. The comments sparked a huge pull back in cryptocurrencies this week along with Chinese crackdown on them.
What this means for investors: Many of the same geopolitical and volatility factors drive cryptocurrencies and precious metals. Bitcoin may have run its course (at least for now) though. Physical gold and silver is ultimately the surest guarantee of long-term wealth storage rather than electronically traded currency. When the bitcoin bubble does burst, many of those safe haven investors will flee back to gold.
What Events to Look at For Gold Going Forward
We’ve listed the reasons that gold is approaching a break out point, but here are some more specific events to watch for precious metals going forward:
- Monetary policy and interest rates
- North Korea missile tests and other geopolitical events
- Political deadlock in the U.S.
- Price dips in metals that provide advantageous buying opportunities
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