Gold Still Not “Ready Player One”
Gold Still Not “Ready Player One” by Tom Luongo – Gold, Goats and Guns
T.S. Eliot had it wrong. For Gold, April isn’t the cruelest month, March is. Every year for the past three years we’ve seen a significant rally in gold during the first quarter. Hopes are raised that finally, the bear market is over.
But, as we get into March the same thing happens every time, when faced with the possibility of a significant quarterly close, the rally peters out, ending with a whimper not a bang.
This year’s rally had us more hopeful than in previous years, since it began in December versus making the low for the year (black arrows on chart).
So, here we are in 2018 and just like in years past, Gold runs up to the $1360-1375 area, the post-Brexit vote high, sees its shadow and climbs back into its burrow waiting for conditions to thaw more (red arrows on chart).
This has been going on since gold broke down below $1600 in April of 2014.
And 2018 is even worse than the previous two years because gold took at run at that resistance level in each of the three months in Q1 and retreated every time. It is now stuck in a very tight trading range between $1320 and $1360.
And one of the oldest adages in markets is coming to mind, “Those markets that can’t go up, go down and vice versa.”
Gold has been pushing up against this resistance zone for the past year since the U.S. dollar began sliding. It’s been a very binary trade since Trump was elected.
So, with the dollar trying to form a bottom here, as expressed by the very dubious trade-weighted dollar index that doesn’t include the Chinese Yuan, it’s not surprising currency traders won’t commit to a direction of the gold market.
And with nearly everyone a dollar bear right now, which makes zero sense to me, they are also, by extension, making an argument for gold in their simplified world view.
If there is one thing gold has taught me in the last 20 years it is that binary trades against it don’t last. And that’s because gold responds to a number of different factors differently. Those factors rise and fall in importance depending on where we are in the cycle.
But, the fundamental factor which drives the big direction in gold is faith in government. A secular bull market in gold can only occur during a period of failing faith in primary government institutions.