Is Gold Losing Its Shine to Bitcoin?

Gold stocks

Gold has been a disappointment this year.

Normally, it’d be up. But the US dollar is down. The yellow metal tends to move inverse to the greenback. In other words, save for a weaker US dollar, gold has done plenty.

Yet it hasn’t moved much, which is strange.

Consider that global tensions are rising, the US Fed is moving interest rates higher, and there have been multiple political investigations in the US. There’s plenty of uncertainty around the world.

Gold — the hedge against confidence in government — has barely reacted. Bitcoin, on the other hand, has stolen the spotlight. Perhaps it’s become the ‘new’ gold? I doubt it. But it’s definitely taken some of the attention away from the yellow metal.

What does that mean?

I’ll explain…

Follow the money

Take a look at the daily chart for gold:

gold price daily chart 06-12-17


Source: Interactive Brokers; Gold Stock Trader
[Click to enlarge]

Gold is still consolidating between the two black horizontal lines. Investors are yet to decide whether the price should go higher or lower.

There’s significant support under the market, as shown by the lower black horizontal line. In that case, as we’ve seen over the past few weeks, the yellow metal could stay around the current range for a bit longer. But it is at the bottom of the range. So caution is advised.

Of course, if geopolitical tensions take an unexpected turn for the worse, gold could surge higher. For a meaningful rally to play out, though, the yellow metal needs to close above the upper black horizontal line. That’s major resistance, which has proved difficult to get through.

Kitko, a buyer and seller of precious metals, reported last week (my emphasis added):

Bullion is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding non-yielding gold.

While another rate increase is expected next month, fears for more aggressive hikes have receded. A lack of clear drivers has kept gold between $1,265 and $1,300 throughout November, its narrowest monthly range in 12 years.

Right now, it’s mainly an unwillingness to aggressively commit to either way in the gold market,” said George Gero, managing director of RBC Wealth Management in New York.

A big and unexpected macro event needs to take place to move gold higher.  

Last week, North Korea launched a ballistic missile into Japanese waters. Amazingly, the gold price fell on the news.

Yet keep in mind that, in September, gold hit US$1,357 per ounce — this year’s high — on back-to-back North Korean missile tests. Kim Jong-un, North Korea’s dictator, then threatened to fire a missile towards the US territory of Guam and successfully trialled a hydrogen bomb detonation. It was rumoured the bomb could hit the US.

This time around, I thought gold would have broken though the upper black horizontal resistance level at the very least. It was trading right next to it before the missile launch. But it didn’t happen.

Maybe that’s because the test was widely expected. Or the market might not be taking North Korea seriously anymore. Perhaps, although unlikely, gold is being replaced by bitcoin as the new ‘safe haven’. It jumped 5% on the news.

I’m not concerned about gold’s future, though. I still believe it will go higher when the time is right.

That could happen sooner rather than later.

With a ‘loose cannon’ in charge of a nuclear-armed country, it might not end well for North Korea…or the rest of the world. Kim Jong-un could do something extraordinarily stupid at any moment. News.com.au reported last week:

US PRESIDENT Donald Trump has vowed slap new “major sanctions” on North Korea after it fired off its most powerful missile yet — but experts say further punishments will only make the rogue nation work harder on its weapons program.

Mr Trump spoke to Chinese President Xi Jinping overnight, and tweeted that the fresh sanctions would be imposed today in response to the North’s “provocative actions”.

“This situation will be handled!” Mr Trump tweeted.

Kim Jong-un believes that Trump is a terrorist. He’s unlikely to accept the new sanctions, whatever they may be. If they’re extreme, Kim Jong-un might greenlight another hydrogen bomb detonation…this time closer to Guam.

Who knows?

But if that scenario plays out, gold could skyrocket back to this year’s highs within hours.

The bottom line: Pay attention to what’s happening in North Korea. Gold could be one missile away from shooting higher.

Regards,

Jason Stevenson,
For Markets & Money

Jason Stevenson

Jason Stevenson

Analyst at Markets & Money

Jason Stevenson is Markets and Money’s resource analyst. He shares over a decade’s worth of investing and trading experience across resource stocks and commodity futures and options.

Jason Stevenson

Latest posts by Jason Stevenson (see all)

Leave a Reply

Be the First to Comment!

Notify of
avatar
wpDiscuz
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@marketsandmoney.com.au