It took more time to get started than the stock market’s bull ride, but the dollar is now well into a five-year bull market. In spite of this trend, Bloomberg has reported that despite U. S. dollar strength, gold has shown tremendous resilience. Mike McGlone, a commodity strategist with Bloomberg Intelligence says that, “Gold appears to be near an inflection point of maximum loss of faith and a potential new bull market, with the foundation solidifying for an extended rally…Long-dormant prices are showing divergent strength to the dollar, volatility has reached the lowest in almost two decades and CME-trade managed-money net positions are record short…Gold holding steady in an environment of dollar strength and a stock market rally indicates a bullish divergence…Elevated mean-reversion risks for its primary adversaries are quite supportive for a sustained gold rally.”
As the true effects of our long-in-the-tooth bull stock market, renewed U.S. isolationism and burgeoning trade war with China take root, the U.S. economy will be forced into a slowing mode of recession. McGlone continued saying, “The sharp dollar rebound halted gold’s climb in April, but is less likely now…The metal’s pre-emptive recovery absent dollar weakness is a bottom indication. The dollar has less room to rally this time.” That’s not to say that gold can’t test the $1,120 support level before the corresponding recoil is triggered. McGlone concluded saying, “A higher plateau in this relationship is unlikely, while the potential and extent of some mean reversion weighs heavily on greater short-covering risks…A primary spark would be a pullback in the trade-weighted broad dollar, which should be approaching the point of diminishing returns near 2016’s peak.”
An important turning point for gold was identified, when Frank Holmes, CEO of U.S. Global Investors was discussing the recent Barrick-Randgold merger, which was one of the largest ever in the mining industry. Speaking of the merger, Holmes said, “Usually these things happen at the bottom of the cycle, not the top, and that’s really interesting because they start to drive economies of scale to get growth.” He added due to lower prices, we may have reached peak gold production, such that investors and miners may need to expect to see supply shrinking.
And finally, Will Rhind, CEO of GraniteShares said,“Gold clearly at this sort of price represents a good value compared to the all-time high in gold that we saw a few years ago. Compared to equities, compared to bonds, compared to real estates, other asset classes, it certainly looks attractive here.” He noted that the strong U.S. dollar has brought down gold demand by weighing heavily on consuming countries, like India and China. So don’t let the opportunity to gather precious metals at this level get away. Call the experts at American Bullion at (800) 653-GOLD (4653). But no matter what, don’t get caught without a chair when the music stops!