This Price Level Might be Gold’s Line in the Sand

In early October, 2018, gold may have found its bottom.

After plunging for the last six months, prices were in the longest streak of losses in about 30 years. Just since April 2018, gold prices sank from $1,360 to a current price of $1,180. 

And while there are those that would tell you, there’s more pain ahead, we’re not so sure.

For one, technically, it appears gold prices gold prices have found its “line in the sand.”

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After a long drop from $1,360, gold prices found and held support around $1,180. In fact, each time it tested that support line between August and October, prices would bounce. 

Plus, as of early October 2018, gold prices were in a tight consolidation pattern.

We believe that once it breaks out of consolidation, we could see a test of resistance at $1,240.

There are plenty of fundamental arguments, as well.

Global central banks have seen the opportunity unfold for example.

Over the first six months of 2018, central banks added 193.3 metric tons to their reserves. That’s up 8% year over year, according to the World Gold Council. 

That’s also the strongest central bank purchase in the first half of a year since 2015.

“I do believe gold has either reached a floor or is pretty close to one,” says Jeff Wright, executive vice president of mineral exploration company Gold Mining noting that central bank gold reserve purchases were the strongest in three years, notes Barron’s.

Recent consolidation may suggest a bottom, as well.

For example, Randgold Resources and Barrick Gold will merge in an $18.3 billion deal. “Consolidation at this level has historically been a sign that we’re nearing a bottom,” says Frank Holmes, CEO and CIO at U.S. Global Investors, as quoted by MarketWatch. 

He also believes that gold mining stocks are the cheapest they’ve been in years relative to the S&P 500. So much so, it may be offering investors a “once in a lifetime” opportunity.

Dollar Strength Won’t Last

We also have to consider that the Federal Reserve is scaling back on balance sheet reductions, note other analysts. This could pull the dollar down, and become bullish for gold. 

That, plus a slew of global wild cards could send gold prices screaming higher.

Others argue that a recession could send gold prices higher.

"We have a vast expansion in deficits in the United States, and if the Fed over-tightens and were to put the economy into a recession and then have to cut rates back, we could see a tremendous, tremendous bull rally in gold," Erik Norland, Executive Director and Senior Economist at CME Group says, as quoted by The Street.

In short, the bottom may be in for gold.

UPDATE: November 18, 2018

The floor held, and $GOLD broke through the $1220 upper channel. At the present time, there is room for gold to move up toward the 200 SMA at $1267 near-term.

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