Gold: When To Take Profits by Victor Dergunov
Summary
- Gold has been up 10 sessions in a row and is now up by about 25% over the last year.
- Gold miners' underperformance and other factors suggest gold is overbought on a short-term basis and prices could decline in future weeks.
- Longer term, the enormous national debt and an upcoming recession will fuel more money creation by central banks.
- This is extremely bullish for gold on a long-term basis, and the stable climb higher should continue despite some pullbacks along the way.
- This idea was discussed in more depth with members of my private investing community, Albright Investment Group . Get started today »
Gold Goes Parabolic: When To Take Profits
Gold is on fire in 2020, up 10 straight sessions, around 25% over the past year and is breaking out to multi-year highs. However, the recent run-up suggests gold may be overheating and the technical image implies that a short-term mini-meltdown is likely. Furthermore, the fundamental backdrop coupled with the likelihood of an overreaction due to geopolitical uncertainty implies gold is probably headed for correction and/or a consolidation phase before it can continue to make new highs.
Technical View
Source: StockCharts.com
In its 9th straight up-day, gold hit a high of roughly $1,590 before returning to earth in a very volatile, high volume session. The following session was also volatile but on lighter volume. Now, gold is around $1,575, but the yellow metal is still very overbought on a short-term basis here.
The RSI is at an extremely high level of over 84, illustrating notably overbought technical conditions. In fact, we have not seen the RSI anywhere near current levels since gold's previous top late last August. In addition to a notably extended RSI, the CCI is also extremely high, and the full stochastic appears to be turning lower, suggesting a likely shift towards a more neutral or negative momentum for gold.
It appears likely that gold may continue to correct from here. I expect the yellow metal to probably revisit the $1,550 level in a gap fill lower. From here, there will be two options in my view. Gold will likely either consolidate around the $1,550 level before going for its next leg higher or gold may have a pull back all the way back down to around the $1,500-$1,520 level of support.
Gold Miners Underperforming
Another troubling factor I want to point out is the underperformance of gold miners. Gold miners typically lead gold higher and outperform. However, this is not the case lately. In fact, both key gold mining ETFs (GDX) and VanEck Vectors Junior Gold Miners ETF (GDXJ) are underperforming gold's recent move.
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