Gold Outlook: Should You Buy Gold Stocks Now

Gold Outlook: Buy the Dip or Flee the Fall?

Updated May 27, 2024

Introduction

The dynamics between gold and the US dollar are intricate and ever-evolving, creating a fascinating landscape for investors and economists alike. As of May 2024, the U.S. Dollar Index (DXY) sits at 104.53, reflecting recent volatility in the greenback’s value. Despite these fluctuations, gold’s response has been surprisingly subdued. This muted reaction suggests a shift in the traditional relationship between the two assets. Typically, a strong dollar would pressure gold prices, as gold is priced in dollars, and a stronger currency makes it more expensive for other countries to purchase.

However, the current dynamic seems to be influenced by other factors, such as geopolitical tensions and economic uncertainties, driving safe-haven demand for gold. This demand has kept gold prices relatively stable, even as the dollar experiences fluctuations. The recent drop in the dollar from 105 to 102, for example, only resulted in a minor shift in gold prices, showcasing the changing nature of their relationship.

Out-of-the-Box Thinking

Traditional investment strategies often fail to capture the complexities of the gold market. Out-of-the-box thinking is essential for navigating this volatile landscape. For instance, while many investors focus solely on the relationship between the dollar and gold, it’s crucial to consider other factors like geopolitical events, central bank actions, and even mass psychology. These elements can provide a more comprehensive understanding of the market and help investors make more informed decisions.

Common sense dictates that no market moves in a straight line. Gold has had a spectacular run but is currently in a correction phase. Technical analysis can provide valuable insights into future price movements. For instance, there is a good possibility that the price of Gold will reach the range of 1900 to 1990 before rising above 2400 and eventually reaching 3000. Therefore, savvy investors with a long-term perspective should welcome price pullbacks. Silver is expected to perform even better in terms of percentage gains.

Technical Analysis and Price Projections

Gold has had a spectacular run but is currently in a correction phase. Technical analysis suggests that gold could reach $1900 to $1990 before rising above $2400 and potentially hitting $3000. Silver, often called “poor man’s gold,” is expected to outperform gold in percentage gains, potentially overshooting to $33 before a pullback.

Fundamental Data: Insider Activity and Short Interest

Fundamental data like insider activity and short interest offer additional market direction clues. High insider buying is bullish, while high short interest could lead to a short squeeze if prices rise.

Market Sentiment and Support Levels

Mass psychology indicates too much bullishness in the gold camp. Ideally, gold would test the $1800 level and hold. It might drop further if it trades below this level for over a week. However, if $1800 holds, it would be a strong buying signal.

Market Insights: Silver and Palladium

Silver is gearing up to test the $27 range, potentially overshooting to $29. Investors should welcome sharp pullbacks as buying opportunities. Gold is poised to test the $4500 to $5100 range, though the journey will be volatile. Deeply oversold Palladium awaits a crucial signal for a significant upward movement.

Market Insights: Silver and Gold Poised for Breakout, Palladium’s Potential Explosion

Silver is gearing up to test the $27 range, potentially overshooting to $29. From a long-term perspective, investors should welcome sharp pullbacks in the precious metal sector, as they will signal strong buying opportunities amidst a bullish outlook. Gold, for the first time, has paved the way for a test of the $4500 to $5100 range. However, do not to fixate solely on these targets, as the journey is bound to be volatile. Certain stocks in this sector are primed for explosive growth. As for Palladium, it presents an exceptional long-term opportunity. However, it awaits one more crucial signal before it can truly be categorised as the “investment of a lifetime,” a distinction that is hard to achieve. Market Update April 3, 2024

Silver has been experiencing significant momentum, which is noteworthy as it’s often called the “poor man’s Gold.” The long-term outlook for the general populace is bleak, signalling challenging times ahead, although this is frequently confused with high inflation. On the monthly charts, both Silver and Gold have room for further upside, with Silver expected to outpace Gold in percentage gains. Silver could potentially overshoot to 33 before experiencing a pullback. It’s currently trading in the overbought zone on the weekly charts; hence patience is needed. We will wait for our indicators to pull back on the weekly chart before aggressively reinvesting our profits into this sector.

From this point, let’s take a historical look at things, as those who don’t learn from history are doomed to repeat it.

Let’s see what the technical picture is illustrating;

Gold will most likely test the old main uptrend line (now a zone of resistance), corresponding to the 630-645 ranges.

Gold Outlook: From Market Update Oct 17, 2006

The above is an excerpt from the communication sent to our subscribers. Note that we would like to state that we are not bearish on Gold. When Gold traded into the minimum oversold ranges of our indicators in October, we said that individuals with absolutely no positions should consider buying bullion (Gold was selling under 600 at that time).

Looking at the first chart, you will notice that Gold could not stay above the long-term trend line; it broke down almost immediately. If Gold does not trade above this line soon and stays above it for at least two weeks, there is a good chance it will test its lows. Another factor comes from mass psychology; there is too much bullishness in the Gold camp right now, and a test of the lows will cut off the weak hands in this camp.

Ideally, Gold would test the 560 level again and hold. If it trades below this level for more than a week, Gold will most likely trade below the 500 mark. If the 560 level is tested and holds, we would be aggressive buyers of bullion, and if it were to trade below this level, it would provide an even better buying opportunity.

Conclusion

Gold did not react strongly to the massive pullback in the dollar; this could indicate that initially, it will trade in the same direction as the dollar, and it has one more corrective wave to undergo. There is also just a bit too much optimism in the gold camp, and finally, almost all trend changes are followed by one fake move in the opposite direction.

There is no doubt that when one takes a very long-term view, gold is still a significant investment. Unfortunately, not everyone can afford to sit through massive corrections; hence, for such individuals (the majority), it’s always best to sit and wait for the opportunity to present itself. If gold does not trade above the main up-trend line soon, then there is an excellent chance that it will test the 560 levels again. A break below 560 for more than a week and gold will almost definitely trade below 500. If gold trades below the 500 mark, we would view it as a screaming buy, and we would be aggressive buyers.

While the current outlook for gold may seem uncertain, combining mass psychology, out-of-the-box thinking, common sense, technical analysis, and fundamental data can provide a more nuanced perspective. Whether you decide to buy the dip or flee the fall, understanding these factors will help you make more informed investment decisions.

People often remain in the dark, not due to lack of light but to failure to open their eyes.

Allen Cornelius Johnson, Bahamian Activist