Useless Rock Still Useless — But Worth More

Useless Rock Still Useless — But Worth More

I have the attention span of a stapler this morning.

Sure, that’s probably not what you want to hear from your daily investment writer…

…but there are so many distractions.

For starters, the gold price dropped US$35 overnight. So I’ve been analysing that 2.25% drop in detail.

Then there’s been a flurry of emails regarding my upcoming speech at Sydney’s Gold and Alternate Investments Conference next month. Notes about dinner with a bullion dealer next week, as well as organising an interview with an Aussie gold expert.

Then I started chatting with someone on Twitter, and we began making price forecasts on what gold will do next.

Let’s not forget that there’s a US bond rot signalling a US recession is imminent.

Yet US stocks were soothed, and rallied over 1% on the pretence of a trade war truce between the US and China.

Overnight, the World Gold Council released new data, which I’ve slowly been working through. That was shortly followed by the Australian Bureau of Statistics’ fresh data dump of building approvals for June…something I’m keen to wade through.

Amidst all this data, my mind has been chewing over the puzzlement of the Aussie dollar.

See, it’s 1.3% higher, sitting at 68.14 US cents, since gross domestic product (GDP) data for the June quarter was released on Tuesday.

Why on Earth would the Aussie dollar rally when hard data is suggesting our economy has almost no growth? Currencies aren’t meant to rally on bad news.

I guess it was the bad news most economists were expecting…

…and it adds weight to the Reserve Bank of Australia’s likely decision to cut rates again next month.

But rate cuts are also bad news. Because they’re an admission that the economy isn’t so flush.

In fact, low GDP results are the bad news driving rates down worldwide…

Gold ready to crack US$1,600

Perhaps the good news is that most of the stuff I’ve mentioned above can be discussed another day.

Today, let’s address gold’s surprising dip.

The drop largely came on the back of the pretend truce in the US-China trade war.

I highly suspect it won’t last.

Nonetheless, the overnight drop of US$35 per ounce may have spooked some gold investors.

Before gold’s dip, the price had been trading around US$1,550 for over a month.

The thing is, even though gold is trading at US$1,517 now, it’s readying itself for a crack at US$1,600.

That’s right.

The dip down really means the metal is getting ready for a push back up…

Today’s drop won’t mean much a year from now…

US dollar gold price – daily chart

Source: TradingView

Gold’s rally to US$1,550 has many in the markets buzzing with excitement.

Although, over the past couple of weeks, I’ve encountered maybe a little too much excitement.

But before gold heads to a new number, to paraphrase Paul Keating, this is the sell-off we had to have.

Let’s look back at August, as marked by the horizontal blue arrow pointing right on the chart.

Last month, there was reasonable price action between US$1,500-1,520, meaning the gold price is likely to find support around here.

Believe it or not, a dip in the gold price makes it more sustainable, from a technical perspective. The big picture for gold is intact.

However, the volatile price movements mean it’s still exposed for the time being.

The issue is that the closest thing gold has to technical support around this level is six years old.

Meaning, there’s nothing but air between US$1,550 and US$1,600.

Even though I suspect the fall to US$1,500 is temporary, the longer the gold price trades slightly above this point, the more support the US$1,500 level will provide in the long term.

In other words, as gold bounces off today’s price and marches upwards to the next 100 hundred buck level, the precious metal will meet price resistance around the US$1,580-1,600 mark.

Remember, a small dip down is far better than a long, straight line up…

…which is generally followed by a long, straight line down.

Have you missed out?

Is it too late?

That seems to be the most common question I get these days.

To many people, it may seem like the opportunity to invest in gold has come and gone.

Especially when you convert that to Aussie dollars, and it costs over $2,200 for one ounce of gold.

But here’s the thing.

The gold price rally is just getting started…

Investors haven’t missed out on the chance to buy into physical gold.

In fact, I believe we are still only seeing institutional money driving the gold price rally.

Right now, the big money is flowing into gold.

Central banks, hedge funds and gold-backed exchange traded funds are increasing their physical positions on gold.

And the overall trend so far indicates that the physical gold buying spree is set to continue throughout the year.

You haven’t missed out on the gold price rally. Private investors still haven’t caught wind of this gold bull market.

The rally of this barbarous relic is only beginning.

Until next time,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia