Bitcoin who?
Gold just broke out to new all time highs.
For the last three and a half years, gold prices were stuck below $2050, a level that is also the 261.8% retracement from the COVID selloff in March 2020. Between those pre-COVID highs at $1,680 and resistance at $2050, the yellow metal has bounced back and forth, digesting the gains from 2015 to 2020 and generally frustrating everyone that has been involved.
Eventually a resolution had to come, one way or the other, and this time, the bulls won out. The trade here is pretty clean: We want to own gold above the 2020-2023 highs with a target of $2400.
We wouldn’t be surprised to see some resistance in the $2200 range, since that’s the 161.8% retracement from the 2023 selloff, but $2400 is the next key retracement from last years selloff and the 423.6% retracement from the March 2020 selloff. That cluster of Fibonacci retracements should draw prices higher.
There could be more to it than that. A move to $2400 would be a huge win for the bulls, but it’s fairly conservative from a big picture point of view. We’re eying $3200 longer-term, which is the 1794% Fibonacci retracement from the 1990s decline. Prices have respected these retracement levels all the way up: The hiccups in 2006 and 2008 occurred near Fib levels, the ceiling from 2013-2019 was the 684.4% retracement, and for the last few years we were stuck below the 1109% retracement. It would make a lot of sense to go up and touch that next level. Even $3200 might be too conservative of an expectation – prices rallied a lot more after the 2004 breakout.
Even with the breakout, we have to be wary of the opportunity cost of owning gold relative to other assets. On the one hand, there’s been virtually no added benefit to holding the S&P 500 over gold since early 2021. On the other, stocks are just a few days removed from setting multi-year highs relative to rocks. We’re keeping a close eye on the backtest of this breakout level:
What would it take to turn the tide in favor of gold? More participation from silver would sure help. Prices for silver and gold tend to be highly correlated, but silver tends to move in greater magnitudes. As such, when precious metals are rising, we expect silver to outperform. That’s what we’ve typically seen during gold’s best runs.
And silver is an absolute mess. It’s not in a downtrend, but it’s not in an uptrend either.
Relative to gold, though, silver is trying to get something going here. The silver/gold ratio is holding above support from the 61.8% retracement of the the 2019-2020 decline.
If this level fails, we have a hard time believing that gold prices will be ripping higher. Especially relative to stocks.
What about the precious metals stocks?
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