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Gold can shine even brighter in August

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August is typically a good time to own gold and I see this month as no different despite recent price gains.

One always has to bear in mind in which currency you are domiciled for relative performance, so listed below is a table of some major gold % gains in some of the more important currencies related to the metal.

Gold in currency terms performance since recent major lows

Gold in USD +25% Since Aug 2018 low

Gold in GBP +32.3% Since Oct 2018 low

Gold in INR +23.9% Since Aug 2018 low

Gold in CHF +25.4% Since Sep 2018 lows

Gold in CNY +25.8% Since Aug 2018 lows

This performance is better than holding US equities for example that are up about 19% on average ytd. 

The gold price in my view remains well supported above some simple price points. 

Long term the 260 day moving average is at $1,243, and the monthly 20 day moving average at $1,338. 

More immediate support at $1,380 and dips near this level would offer fresh long opportunities in my view.

Upside potential lies towards $1,483 initially which would be half way, (50% retracement) of the 2011 all time high to 2015 major low. In time extending above that would leave $1,586 as 61.8% retrace (a Fibonacci ratio) of these major extremes to target a level typically used in financial markets to measure corrective price activity.

Gold in USD: Support levels $1,380 $1,338 $1,243 Resistance levels $1,456 $1,483 $1,586

Why has gold done so well recently?

There are many but I will list just a few simple ones.

1) China has a target of 8,000 tonnes of gold reserves so as to enable it to be on par with the US and European Union as a gold to GDP ratio. They are trying to achieve this at a fast pace.

2) Geo-political tensions can often give a boost to gold as a short term protection against the near term unknowns. There have been various news events from Iran to trade tariffs with China etc this can help in the shorter term.

3) Financial market woes in the fixed income market, (debt market/govt bond market) are triggering flows to other assets classes. The German yield curve in all tenors had turned negative from 2yr-30yrs on Friday, and US 10 year yields have fallen sharply below 2.0%. Even countries such as France have a negative yield for their respective 10 year govt benchmark bond. What this means is financial market investors/speculators are looking for alternative investments.

4) The US Dollar is real interesting here. Last week the US Federal reserve cut interest rates in the US by 0.25%. Economists will suggest a weaker USD to come which in turn you think benefits gold. But actually the US Dollar index is strong, +7.16% since March this year and +23.26% since February 2018, and yet gold still rises. Gold is also not a hedge against inflation since we have had low inflation and gold has risen.

Conclusion:

My thoughts are gold and other metals (love rhodium for example) have more to go. Gold coins albeit bullion or better still semi numismatic gold coins (such as modern proof sovereigns) are a tax free way to take advantage in vanilla terms to a gold exposure. Gold sovereigns were trading below £200.00 only a couple of years ago. Now you have to pay around £270.00/£280.00 for a bullion coin. Scarce coins in finite supply such as 70-graded coins add hedging to your gold investment and so are a good way to build a portfolio.


 

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