Can the Price of Gold Continue to Rise?

Don’t let all the emotional headlines blind-side you to the opportunities.

There’s always a trend to ride, whatever the markets are doing.

Sometimes you just have to join the dots and make the connections.

Here might be a case in point.

Investors flocked to safe-haven assets this month, after the sell-off in equity markets.

The gold price in particular surged.

But one wonders whether that gold price can be sustained longer-term.

Can the current price of Gold withhold?

The US economy is still showing signs of strength, despite concerns over rates and trade.

And before you get too excited about the recent rise in gold price, here’s the longer-term chart:

Gold Prices

Source: Goldprice dot org

[Click to open in a new window]

It puts the move in context. You can’t say too much about the gold price really. Other than it’s been tracking a sideways move for the past two years.

Perhaps there’s more upside for gold as investors become nervous.

But you’d want to see it break above the US$1,375 per ounce level, before you make any sweeping statements about where the gold price may be headed.

But there’s another angle to view the gold price from.

And here’s where you can join the dots a bit.

Battle of the Titans: Who wins when bitcoin and gold head-to-head…and how can you profit? Find out more here.

Gold is denominated in US dollars

And so that gold price can change markedly, based on the currency moves from other countries.

Let’s take a look from down-under.

But before we get to the gold price, here’s what the Aussie dollar has done this year compared to the US greenback:

AUD TO USD Forex Chart

Source: Trading view dot com

[Click to open in a new window]

You have to say that’s a bearish chart. It’s been in a downtrend all year.

And this downward pressure on the dollar might be more than just a passing phase.

Here’s why…

It comes down to interest rates and property.

In the US we had years of pretty much zero interest rates, following the GFC.

But you knew they’d start to normalise rates at some point.

Last month, the US Federal Reserve hiked interest rates for the eighth time since 2015.

And at the start of the month, Fed Chairman Jerome Powell suggested more hikes are coming.

Back home meanwhile, the Reserve Bank of Australia has left official interest rates on hold at a record low rate of 1.5%, for a record 26 months.

This divergence has caused the interest rate gap to widen between Australia and the US.

And while Australia’s cash rate has fallen over the last seven years, Aussie property has sky-rocketed.

Can you see how low interest rates don’t necessarily make it any easier to buy property?

It just means people can borrow more, and take on bigger mortgages.

Land price takes all the gains, eventually.

As an investor, you’ve just got to come to know this.

Anyway, that aside, the Reserve Bank is in a bit of a bind right now.

The RBA is in a pickle

They don’t have a lot of room to move.

Raising the official cash rate will put the screws on already over leveraged home owners.

Not to mention Sydney and Melbourne property is already showing signs of slowing.

The Reserve bank will find it hard to raise interest rates now.

The case just doesn’t seem to be there for a move up anytime soon.

Unless we have some spike in inflation, but those numbers continue to come in weak.

Certainly, there seems to be no urgency on the part of the RBA, and rates could stay low for some time yet.

With this ever-growing divergence in Australian and US interest rates, our Aussie dollar may struggle to find buying support.

And so, while the rally in the gold price this month could be a flash in the pan, the low Australian dollar might be here for some time more.

That means the prospects for gold priced in Aussie dollars has some longer-term tailwinds going for it.

It’s a potential boon for Aussie gold miners in the year ahead.

Now let’s bring up the chart of the gold price in Aussie dollars:

Gold prices in Australian Dollars

Source: Goldprice dot org

[Click to open in a new window]

The price continues to make higher lows and is an altogether more bullish chart.

Many Australian miners can produce gold with all-in-sustaining-costs of around $1,000 an ounce.  Which they can sell to market at roughly $1,700 an ounce.

That gives some fat margins.

And those margins are likely to stay around for some time to come, while the US Fed continues to hike and the RBA remains frozen like a rabbit caught in the headlights.

A lot of sectors are struggling right now.

But Australian gold miners have held up quite well this month.

This sector is in great shape right now and may well hold up in the year ahead.

It’s a sector to keep an eye on.

Interest rate and currency movements play a big role for Aussie gold miners.

And it shows how you need to watch these moves to keep on top of opportunities and to know what’s going on in the broader economy.

Terence Duffy,
Chartist, Phil Anderson’s Time Trader

PS: Gold Buyers Guide: How your gold investment could become the most lucrative mark on your portfolio. Get your free blueprint here.

Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come — which he details in Cycles, Trends and Forecasts.

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