October 16, 2024
A New Force to Send Gold Surging
Dear Subscriber,
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| By Sean Brodrick |
Gold prices topped out on Sept. 26 at $2,708.70, and since have drifted sideways to down.
This is leading many to think gold’s run is over.
Oh, heck no!
I’ll give you three reasons why.
Plus, a NEW FORCE is about to make itself felt in the gold markets — and send the yellow metal much higher.
That’s on top of the reasons why gold is trading near all-time highs in the first place …
Force No. 1: More Rate Cuts Are Coming
It was just a few weeks ago that the Federal Reserve finally, FINALLY began cutting its benchmark interest rate, with the first cut in four years.
The Fed slashed its benchmark rate by 50 basis points to a target range of 4.75% to 5.00%.
There should be at least another 50 basis points worth of cuts before the end of the year and four more 25-basis-point cuts in 2025 if the Fed’s “dot plot” forecast holds true.
The Fed is expecting to lower its benchmark rate to 4.1% by June 2025, and 3.1% by June 2026.
This chips away at support for the U.S. dollar against other currencies. Since gold is priced in dollars, as the greenback goes down, the yellow metal usually goes up.
Force No. 2: A Bull Flag
A chart of gold seems to show the metal is forming a bull flag, one of the most reliable chart patterns.
Here’s a chart of the SPDR Gold Shares, which holds physical metal and reliably tracks the percentage move in gold. It’s also an easy way for retail investors to get exposure to gold …
GLD (and gold) are stepping higher along the 20-day moving average. It sure looks like the GLD is forming a bull flag.
In fact, gold was testing the top of that flag for a potential breakout yesterday. The old saying on Wall Street is, “Flags fly at half mast.”
So, if gold follows through on the breakout, which could happen soon, we should see the metal move another 14% higher in the short term. That would push gold to nearly $3,100 per ounce.
That’s my short-term target — a matter of months.
In the long term, my research gives me a gold target of $6,902. That will take a few years, and it’s a zigzagging path higher. Pullbacks can be bought.
So, what will power gold on that next leg higher?
Force No. 3: Gold ETF Buying
As a gold investor, I’ve always viewed physical gold ETFs as a two-sided sword.
They help during bull markets, as investors pile in and help push gold higher.
But in bear markets, physical ETFs make things worse by adding to the selling.
We’re in a bull market now. And ETF buyers are just waking up to it.
Check out this next chart, showing the price action in gold, buying and selling by physical gold ETFs and gold purchases by China’s central bank.
The gold line is the price of gold itself. The blue line is total known gold ETF holdings. Until recently, even as the price of gold went up, gold ETFs were selling into the market.
That means those physical ETFs were a drag on the price of gold — but purchases by the world’s central banks overwhelmed that selling.
You can see how much gold China’s central bank is stacking. Other central banks — Poland, India, Turkey and more — are buyers, too.
More recently, though, physical ETFs started buying the metal — you can see how the blue line turned higher.
In September alone, it amounted to $1.4 billion worth of gold purchases. This adds a force to the gold market that was absent — and opens the way to a big, bold move higher in the yellow metal.
Meanwhile, gold mining stocks were beaten down for years. Despite this year’s rally, many still look dirt cheap. You need to be selective, but there are bargains out there.
Or you can buy the GLD. It’s a popular move with many investors as the price of the yellow metal gears up for its next surge.
All the best,
Sean
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