The Battle of the Ages Begins…
That’s what gold has done over the past 24 hours.
Up. Down. Up, up, up. Then doooooowwwwwwn.
Yesterday’s 30-buck swing above US$1,600 caught me off guard. I sauntered into the office a little before 9am and the yellow metal was at US$1,583.
Two hours later, I got a text message from a friend yahoo-ing about the price of gold cracking US$1,600.
That’s how quick the jump was.
Come this morning, it had dropped all the way back down to US$1,554.
An overnight plunge of US$54, or 3.2%.
Surging on fear
Given it’s the New Year, analysts will start rolling out their forecasts. You know, what to expect for the year based solely on what we know today.
It was only yesterday I was saying to a co-worker that I expected gold to reach US$1,600 in the next couple of days.
When news of the Iran military strikes hit the airwaves, the precious metal soared quickly, spiking as high as US$1,611 as war fears crept in.
The price of the metal dived when Trump soothed the markets. Telling us that the no Americans were hurt. In turn, markets took that as a sign the worst was over.
The fact not a single Iranian missile resulted in any US casualties has been interpreted as merely a response strike for the US killing Qassem Soleimani. Furthermore, much of the US media is implying that now Iran will stand down.
Trumping speaking and tweeting calmed the nerves, and gold fell.
US dollar gold price — 15-minute chart
(5–9 January 2020)
Arguably this reaction is the yellow metal doing what it does best.
Sensing the fear in the markets as investors flooded into gold on word of missile strikes.
The rise and dive from gold was a little on the extreme side, but it’s important to remember that it’s still very early January.
Many people are still on holidays. My own Fat Tail Media office is running on a skeleton crew.
So the surge upwards is as much about a lack of opposing trades as it is about fear.
In other words, there’s not a lot of traders around right now to take the other side of the trade.
This lack of liquidity means that the sudden rush up didn’t have much to pull it back.
Where to from here?
A sharp rally and a slump. Does that mean the gold rise is done?
Nope, not on your nelly.
On Monday I mentioned that I think gold is going to gain somewhere between 15 and 20% this year.
Now, I’m not surprised that gold has traded through US$1,600.
Moving through it for the first time in seven years is a positive sign.
But the sell-off isn’t the end of the world either.
I’ve often said the gold price going up in straight line makes me more nervous than small rallies.
Because a straight line up often means a straight line back down, leaving the metal no chance to find technical support at either end.
So, the heat coming off overnight is a good thing.
That said, what’s next?
The first price point to watch is around US$1,550.
I expect to see the yellow metal bob along here for a little bit longer.
The Chinese New Year is only two weeks away. It’s likely jewellery demand gifted at this time of year will keep the gold price where it is.
But — without trigger-happy leaders of course — I wouldn’t be surprised to see the yellow metal fall a little further…back down to US$1,480 as we move into late February and early March.
US dollar gold price — daily chart
(May 2019 to January 2020)
In saying that, any dip in the gold price is unlikely to turn into a price slump.
Think of these price levels like a toddler learning to walk.
The ups and down might feel like it’s going nowhere fast.
Yet every time the yellow metal dives and tests a previous price point, followed by 180 degree turn back up again, it’s creating ‘support’ for the price.
Really, the precious metal soaring, then met with a stumble are just features of an asset in a bull market.
Gold could very well finish 2020 around US$1,850.
East versus West
Now, the dirt I’m sure you’ve all been waiting for…
Last year I was a speaker at the Gold & Alternative Investments Conference (GAIC) in Sydney.
Truth time. The night before when I was rehearsing my speech, I kept running five minutes over time.
And I didn’t want to be the speaker that threw the whole schedule out.
I made a decision. I cut two slides out thinking that would bring me under the 30-minute time limit…
…and it did.
But the problem was, by cutting those two slides out, I actually dropped two whole anecdotes and that meant I finished eight minutes early!
The flip side of this is that I could open up the floor to questions.
Then the master of ceremonies, Tony Locantro, and I had a chance to chat on stage.
Next minute we were both puffing our chests up about who’s the best gold stock picker…
…suddenly that bragging turned into a full-blown competition.
That’s right folks.
Tony and I have put our credibility on the line.
Tony, a stock broker based in Western Australia, against me, a newsletter writer with a thing for micro gold stocks based in Melbourne.
A battle for the ages…East versus West if you will.
As of 1 January 2020, we emailed out our top 10 gold stock picks to the organiser of GAIC.
Come August this year, Tony and I will be up on stage to discuss why we picked our companies, and whose miners retuned the biggest gains.
As for what stocks I picked?
Tune in tomorrow. I’ll talk about why 2020 could be the year of the gold miners…and the stocks I’ve chosen to go up against Tony’s.
One thing I know for sure, it’ll be a nail-biting eight months.
Until next time,