Another week has drawn to a close, so I thought it would be a great time to revisit some recent moves in the gold price.
Everything seems to be turning on its head currently.
Unprecedented government stimulus has toyed with the markets.
As joblessness begins to mount around the globe, commodities, foreign exchange, and risky assets are behaving in some unusual ways.
Gold has struggled to gain the haven status it usually does in times of volatility and market depression.
The yellow metal managed to rebound 1.4% to US$1,614 an ounce yesterday despite a rising US dollar, which so far has acted as the safety vehicle for many investors.
So, I thought a bit of technical analysis might help us understand what is going on.
Gold price holds off as governments mash stimulus button
The past few weeks has depressed the gold price as federal stimulus has flooded the market with liquidity.
Source: TradingView
But things look like they are about to change, and the price of gold is poised to rise.
Short-term momentum is looking good.
The 10-day moving average (blue line) has now just past the 50-day moving average (yellow line), indicating the trend is shifting upwards.
The moving average convergence divergence (MACD) in the second graph helps us to decipher the changes in the strength, direction, momentum, and duration of the trend.
The MACD indicates that medium-term momentum has turned positive (blue line has passed the yellow signal line), however this trend is beginning to flatten already.
What do we make of this?
Well, I believe there is an opportunity for gold to breakout here.
The US jobless claims came out to be twice as bad as anticipated causing the USD to lose ground against the (perceived safer) Japanese yen.
This could bode well for the price of gold.
Ultimately, the longer the coronavirus pandemic, the more economic conditions will deteriorate, the more likely gold will continue to benefit.
Which gold stocks will benefit?
Saracen Mineral Holdings Ltd [ASX:SAR] is looking well positioned to benefit if we continue to see an uplift in gold.
The $4.15 billion dollar company has seen a 42% rising in its share price of the past year despite the current market collapse.
SAR is one of the few companies to now withdraw current FY2020 guidance.
The company announced last month it had been mostly spared from the operational impacts of the coronavirus in the March quarter.
Saracen also said it has large ore stockpiles available for milling, which will help insulate the business should mining be further restricted.
Previously, I alluded to how gold stocks (particularly Aussie gold stocks) could be better shielded this time around due to currency fluctuations.
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Regards,
Lachlann Tierney,
For The Daily Reckoning Australia
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