Gold is back – here’s the key price it needs to break through next
After years in the doldrums, the price of gold has broken out to over $1,500 an ounce. Dominic Frisby explains gold’s astonishing recovery and looks at the crucial price to beat if this rally is not to peter out.
This time last year gold was sitting below $1,200 per ounce. Forgotten, scorned and reviled. What a turnaround.
Today gold sits at $1,525 an ounce. That's still some $400 off its all-time high of $1,920/oz, set back in 2011.
But against the euro, the pound, the yen, the Canadian dollar, the Aussie dollar and more besides, gold is at all-time highs.
Best of all, it's all happening without a lot of fanfare. Perhaps it's because Brexit occupies every available column inch here in the UK or perhaps it's because I tend to avoid a lot of the perma-bull gold media but it seems that not a lot of people are talking about it.
Gold, in other words, is not properly on the radar again - which is good. It means there are plenty more buyers still to come to market. Stealth bull markets are the best kind.
Gold's quietly astonishing recovery
The move over the summer has been especially extraordinary. June to August is supposed to be the summer doldrums for the precious metals. The Indian wedding season hasn't got going yet; the brokers and the CEOs are all off on their summer hols; the market goes to sleep.
Not this year. Gold was below $1,280 back in June. Less than three months later, it's $250 higher.
These 25%-30% year-on-year gains have been achieved while the US dollar itself has been rising, confounding the notion that gold only rises when the US dollar is weak. That patently isn't true the US dollar index is at two-year highs.
If you have read my pieces on gold over the years, you'll know I've been harping on about how gold needs to get through $1,360. Since 2013 that zone has been a barrier at which every decent rally has run out of steam. In each of the five years since 2013, gold has failed at that level. Even in March it meekly retreated.
But come June, gold burst through like it wasn't there. The result, if you're into the voodoo that is chart patterns, is a break-out from a multi-year base a break-out of a six-year, "inverted head-and-shoulder" pattern.
That portends much higher prices $1,660, according to the chart voodoo.
Gosh, it feels good to be positive about gold again. Perhaps my excitement will mark the top.
Here's where gold needs to get through next
The next big level that gold has to deal with is right around where we are now in the mid-$1,500s.
It would be a quite normal place for this rally to peter out. In fact, were it not for the fact that this bull market has batted away every obstacle that's been thrown at it as though it wasn't there, I would be toying with the idea of small speculative short. But pennies before steam rollers and all that.
I'll explain why we are at a resistance level. Basically, it boils down to this: gold and this price point have history.
Take a look at the chart below. It is a weekly chart of gold since 2009. I've marked the current resistance area with that red band.
You can see where I've drawn the red arrows. First this zone was resistance on the way up in 2011. It took several months to get through. Then gold peaked in September 2011 spiking in the months before, rather as it is now before collapsing back to the red zone, where it found support.
That area would prove to be support all the way through 2012 and into 2013. It was only in the spring of 2013 that it finally gave way, and so followed three of the most miserable years in gold investing history.
It's a huge technical level.
And here we are, six years later, butted right up against it once again.
Do we go straight through? Do we stall for a while? Do we fail and collapse? These are the decisions we have to make as investors.
My gut says stall. The completed head-and-shoulder pattern says straight through. The FT, no doubt, says collapse. (I've haven't actually read that in the FT but it is consistently anti-gold, for some reason.)
So there we are. Exciting times for the gold bulls.
How to buy gold
If you want to buy gold, there are of course a gazillion different ways you can. You can pop into Sharps Pixley in St James in London, and purchase your sovereigns as every discerning citizen should.
You can buy from them online as well. Or you can give the good folk at Goldcore a bell or a visit and store your gold in the safest vaults that vault makers have yet to create. Ditto Bullion Vault and Goldmoney.
You can, via your broker, buy one of the numerous exchange traded funds that are listed on stock exchanges around the world.
You can dabble in the dark arts of futures trading and spread betting (but seriously, this is incredibly risky, don't do it unless, at a bare minimum, you understand how catastrophically wrong a leveraged bet can go). Or fall victim to the lures of the dreaded gold mining company.
So many different ways to buy the eternal metal (see here for more on how and where to buy gold)
Enjoy the ride!