Gold breaks out
I have been wrting about gold for a few weeks now. See here and here. The coiling inside bar on the daily chart was a key giveaway that gold was going to break. Now, it was unclear which way it was going to break, but the fundamentals for gold was strong which was why I wrote on May 7 that one option was to buy at market and look for a break. With a wide enough stop the thinking was that a false (downwards) break of the coil would likely find buyers:
You could buy a gold etf. That saves the issue of leverage if you buy in real money. Another option would be to dip your toe in here with stops below $1636 and look for the break.
Please note that whenever you see these coils forming, price is getting ready for a strong breakout:
So, for those long gold, or wanting to go long, the case for gold bulls still remains firmly in place. Here is a brief rundown of some key points for the bullish case for gold:
1. Firstly, we have central banks cutting interest rates and heading to zero or lower. The Swiss National Bank, the European Central Bank and the Bank of Japan all currently have negative interest rates. For many countries, where inflation levels are higher than interest rates levels money in the bank will simply lose value year on year. Therefore, investors who have moved into cash will be looking to place their cash in a safe haven. Check out this handy explanation on how interest rates impact gold prices here.
2. In the last three recessions gold has increased in value, so as a hedge for a recession gold does have strong appeal.
3. Furthermore with large scale quantitative easing (QE) programmes undertaken by central banks around the world and some analysts anxious about high stock valuations, gold offers a hedge against such devaluing risk. QE devalues a currency, so money is literally losing value. This is why many analysts would recommend have a portion of your portfolio in gold. History, may not be repeated, but the fundamental outlook for gold is currently very strong.
Expect gold buyers from $1740 and below.
