Why the gold rally is even better for Aussie investors

Why the gold rally is even better for Aussie investors

I couldn’t have asked for a better Christmas present.

As we frocked up and headed out to our end-of-year Christmas party…little did I know that a rally was underway.

Out of seemingly nowhere, the price of gold was beginning to rise.

The yellow metal had been stuck in a frustrating US$10 trading range for days.

Then just as most market watchers were shutting down for the year, the yellow metal finally moved higher…

In a couple of quick moves, gold was nudging US$1,300 — exactly where it started the year.

The fear trade was on.

US markets tank

The pre-Christmas December selloff was savage for US markets.

The Dow tumbled 8% over four trading days. The tech-heavy NASDAQ dropped 6.6% in the same time. The S&P 500 fell the least, down 5.5%.

The Aussie market only dropped 2.5% over the same period.

Yet gold jumped almost US$10 per ounce in value for every day the US market fell.

Finally, the fear in the stock markets had filtered through to gold.

I mean, it’s only taken a trade war, rising rates from the Fed, British political turmoil, Chinese military ships asserting dominance over US warships, a potential Italian government default, the threat of nuclear war from North Korea…and finally, US government gridlock.

In spite of 2018 being full of market-destabilising events, it was the pre-Christmas selloff that triggered the flight to gold.

As I write this, gold — in US dollar terms — is trading a couple of bucks below the US$1,300 mark.

So the real question for gold investors is: Does this rally have legs?

The next month is crucial

The gold rally we just witnessed is one I have been expecting.

Take a look…

US dollar gold price – four-hourly chart

Source: goldprice.org

The black arrow on the chart marks the start of the gold price rally. The US markets continued to fall into Christmas Eve.

As you can see, the price of gold rapidly moved higher — even after the US markets stopped falling.

However, the speed of the gold rally is to be expected. This is what the price of gold does. It moves quickly as a reaction to the uncertainty in the markets.

So, let’s talk turkey.

Where to next for gold?

Well, let’s focus on gold in terms of US dollars for the moment.

Gold bugs like myself aren’t going to like what I think will happen over the next four to six weeks.

Firstly, though, there is some good news. I believe gold will crack the US$1,300 mark in the next week or so. As people return from their breaks, there’ll be a bunch of traders trying to jump in and join the rally.

The bad news is that I think the rally will lose a little steam around the US$1,320 mark.

There could be some technical resistance (a point where the price of an asset struggles to move through), and gold punters should be prepared for the metal to turn around and fall.

But just how far will the yellow metal tank? Not too far at all.

As I said for the entire second half of 2018, the days of gold being under US$1,200 per ounce are over. That was 2018’s price — a price we may look back on and wish we took advantage of.

In saying that, if the gold price does sell off like I predict, then there are three key price targets to watch out for.

The first is US$1,290. However, my analysis leads me to believe the gold price will fall through that…and head back down to US$1,265 (give or take a dollar).

Now, if the gold price falls below my second point, then we can expect gold to fall all the way back to US$1,250. That price point has been a key psychological level for traders over the past couple of years.

What’s exciting about this, though, is that it won’t take long to play out. Just like gold’s unexpected and rapid rally at the end of 2018, I anticipate we’ll see all of this price action unfold between now and early February.

Hang on to you hats, gold traders. It’s going to be wild ride.

Even better news if you’re an Aussie investor

Oh, but what about Aussie gold investors?

If you’re Australian, chances are you bought gold with Aussie dollars.

Well, dear reader, the news is even better for you.

Currently the gold price in Aussie dollars is trading at $1,847. However, it soared as high as $1,888 in overnight trade.

This is an all-time high for the value of gold in our money.


The Aussie dollar.

Our currency is quite weak at the moment. It dropped below 70 US cents yesterday. And in this video I made earlier in the week, I explained that the Aussie dollar is likely to get weaker in value this year.

That means the price of gold in Aussie dollars will rise much faster than the price of gold in US dollars.

In the video, I say that I’m looking for gold to trade at $1,900 in our money.

Scratch that. After last night’s price action, I’m thinking that the Aussie dollar gold price could touch $2,000 per ounce sooner rather than later.

And that will be an incredible windfall for our local gold miners. The huge disparity between the US dollar gold price and the Aussie dollar gold price puts a lot of extra cash in their pockets.

Our gold mine producers could be all cashed up…and maybe they’ll even start buying up some tiny gold explorers.

This is going to be a very exciting year for gold. 

Until next time,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia