Gold is a safe haven
The emerging market turmoil in January got the safe haven ball rolling. The
slowing U.S. economy then added another boost, especially with Yellen keeping
the same policies as Bernanke.
And now geopolitical concerns, like the crisis in Ukraine, are giving gold
yet another safe haven push upward.
Plus, with the U.S. dollar under pressure, while interest rates stay low,
it's also bullish for gold.
Overall, physical demand and economic jitters are boosting the gold price.
The ever growing demand
Clearly, the world has plenty of uncertainty. From Russia, Ukraine, Venezuela,
emerging currency devaluations, the sluggish U.S economy, as well as the slowdown
in China, the world has hot spots.
With this backdrop it's easy to understand why demand continues to grow. The
world wants gold.
Today gold is in a C rise that began with the December lows.
So far gold's 15% rise looks good and gold is strong above $1300. Gold could
now easily rise further to test its August high near $1420.
In fact, if gold rises back up to its 23 month moving average and prior support,
we could see the $1485 - $1536 level tested.
Keep in mind, a rise of this type would be a very good looking rise. But gold
won't really turn bullish until it can rise and stay above these levels.
Gold stronger than gold shares... but for long?
Gold has fallen less than gold shares. Clearly, they are the volatile ones
of the group. Gold shares tend to rise more, and fall more than gold does.
But comparing gold to gold shares, you can see on Chart 1 that the
mega trend still favors gold.
In gold shares' case, the ratio rose to an extreme high in 2013, favoring
gold, because gold shares collapsed when gold fell. This is saying that gold
shares are poised to continue outperforming gold until a more balanced situation
evolves.
Chart 2A provides another angle. Here you can see how much weaker gold
shares have been compared to gold since the 2011 peak. This weakness widened
the most last year. But as the ratio (B) shows, it's formed a downside
wedge also suggesting that gold shares will continue to outperform gold this
year, and possibly beyond.
Gold shares are up 33% on average since their mid-December lows, which suggests
that a major shift in sentiment is taking place. Investors are starting to
turn toward gold and gold shares.
We recommend buying and keeping both.
