Both risk-on and safe-haven asset classes gain ground | The Gold Forecast

Both risk-on and safe-haven asset classes gain ground

September 9, 2020 - 6:44pm

 by Gary Wagner

U.S. equities staged a 180° turn around in trading today. All three major indices sustained major drawdowns yesterday, with the NASDAQ composite moving into corrective territory. Today the tech heavy NASDAQ composite gained 2.71%, and after factoring in today’s gains of a little over 293 points closed at 11,141.5642. To that end, today’s reversal in U.S. equities were impressive. Tesla which had lost 30% since the stock split 5 to 1 on the 31st of last month gained back almost 11% in trading today. Gains in the NASDAQ were not isolated to that index alone with the S&P 500 gaining 2.02%, and the Dow Jones industrial average gaining 1.6%.

At the same time, we saw the precious metals complex continue to gain ground and move to higher pricing. Although dollar weakness contributed slightly to gains realized in gold, silver, platinum and palladium, it was traders actively buying the precious metals that were responsible for the majority of today’s gains.

This can be illustrated when we view the KGX (Kitco Gold Index). According to the index spot gold gained a total of $16.70 in trading today and is currently fixed at $1,947.70. On closer inspection we can see that traders bid gold pricing higher to the tune of $11.70, with the remaining gain of $5.00 directly attributable to dollar weakness.

Gold futures basis the most active December 2020 Comex contract is currently fixed at $1,955.70 which is a net gain of $12.50 (+ 0.65%) on the day. The dollar index lost -0.22% and is currently fixed at 93.235. Simple math tells us that the differential between a gain of +.65% in gold futures and the loss of -0.23% in the dollar index means that 0.42% of today’s gains in gold futures can be directly attributable to buying.

It seems as though at least for now, traders are witnessing the unique tandem moves to the upside in both U.S. equities (risk-on asset class), and gold (safe haven asset class). This occurrence is typically not what investors expect to see, because these two different asset classes tend to move with a opposite correlation in different directions.

However as we have spoken about on many occasions this negative correlation seems to vanish when the Federal Reserve is actively keeping interest rates extremely low, and has a monetary policy which includes quantitative easing achieved by purchasing treasuries, mortgage backed securities, and in this instance corporate bonds. It seems unlikely that the Federal Reserve will raise rates before real progress has been made on their mandate of a stable economy and maximum employment. The only difference in recent Fed actions is a rebalancing of their acceptable target for inflation, which for years was set at 2%.

Chairman Jerome Powell in his keynote speech during the economic symposium made it clear that they will focus on economic growth and job growth while they let the level of inflation run hotter than they have in the past.

As long as the monetary policy of the Federal Reserve in conjunction with other central banks globally maintain a monetary policy that is extremely accommodative and maintain low interest rates we can expect to see a continuation of the rally in gold and silver in tandem with U.S. equities.

Wishing you as always, good trading and good health,

Gary S. Wagner - Executive Producer

This report is now free and publicly available to everyone

Gold Forecast: Proper Action

On Tuesday September 8th, we sent out a trade alert:

Buy December gold (GC Z20) current $1947.00 Stop @ $1898
Buy Forex gold (XAU A0-FX) current $1939.00 Stop @ $1883
Buy December Silver (SI Z20) Current $27.07 Stop @ $24.73

Maintain long gold and silver futures and forex trades - Maintain stops

Trades we Closed on September 2

Long December gold @ $1956.50.Stop hit @ $1960 for a profit of $350.00 per contract
Long December silver @ $27.39.Stop hit @ $27.80 for a profit of $2050 per contract
Long forex gold @ $1948.55.Stop hit @ $1955 for a profit of $6.45 per ounce
Long GLD @ $183.57.Stop hit @ $184.36 for a profit of .79 per share
Long SLV @ $25.10.Stop hit @ $25.75  for a profit of .65 per share

Trades we Closed on August 19th

Long September silver at $26.68. Our stop was hit @ $26.87 for a profit of $1000 per contract.
Long December Gold at $1955.50. Our stop was hit @ $1979 for a profit of $2350 per contract
Long Forex Gold at $1947. Our stop was hit @ $1967,52 for a profit of $20.52 per Ounce

Trades we Closed on August 11th

Long September silver at $24.40. Our stop was hit @ $25.99 for a profit of $7950 per contract
Bought  GLD @ $166.74. Our stop was hit @ $$183.00 for a profit of $16.87 per share.
Bought SLV @ $18.00  Our stop was hit @ $23.80 for a profit of $5.80 per share.

Trades We Closed on August 7th

NUGT – we sold all shares and took profits of $33.19 per shareLong December gold at $1997, we covered the trade @ $2035 for a profit of $3800 per contract
Long Forex gold at $1977, we covered the trade @ $2017 for a profit of $40.00 per ounce

Gold Market Forecast

Interesting action in the financial markets today with gold and silver continuing the rally which began yesterday, and US equities staging a key reversal or pivot. On today’s video report we will discuss our current trade and begin to look at various models for our exit strategy. We will look at both short-term potential, and also look at the big picture for where we believe gold prices could reach at the conclusion of this major rally.

Also look at the possibility of adding the electronically traded funds GLD and SLV. Of course as always we will send out a trade alert if we believe this is the best course of action.

Market Overview

Economic Calendar