Whenever financial turbulence erupts, investors always buy gold. This pavlovian response is driven by haven-buying habits and the fact that investors are expecting major central banks to cut policy rates.
In Asia this week, for example, India, New Zealand, and Thailand all cut policy rates. Some to record lows. This monetary shift is accelerating and putting pressure on all other central banks.
In this new monetary landscape, which only began in earnest this year, gold is rallying in a spectacular fashion. Prices touched a multi-year high of $1,500 recently – a level last seen in April 2013 (see below). This is a major base breakout extension. But having gained $200 in just eight weeks, is it now too late to chase the yellow metal?
Over the short term, perhaps. Gold’s trend is becoming crowded, ie, more and more traders are long this metal in anticipation of higher prices. Whenever the consensus turns one-sided, some revisionary moves may happen, especially when prices are trading at major round number levels ($1,500).
For investors looking to long this metal, watch to establish positions on setbacks. Gold may test its pre-breakout level near $1,450 as support.
For more speculative buys, Silver is a good candidate. Prices have been moving in tandem with gold but with poorer relative strength. Prices remain far beneath its long-term highs ($50) and also below its major resistance ($20). See Featured Chart. Like gold, watch for minor setbacks to initiate/add positions here.
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Jackson has over 10 years experience as a financial analyst. Previously a director of Stockcube Research as head of Investors Intelligence providing market timing advice and research to some of the world largest institutions and hedge funds.
Expertise: Global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.
Jackson has a PhD in Finance from Durham University.