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Ask The Expert

Lifting Gold Off the Mat

Lifting Gold Off the Mat_1

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February was a particularly lousy month for the price of COMEX gold, and it came after January ended with many traders and stackers feeling positive and optimistic. Such is the gold market. The more things change, the more they stay the same.

It's hard to believe that just one month ago, COMEX gold had begun the year on a tear. It had moved higher than we'd expected, and price was closing in on the top of its range and $2000/ounce. What happened next? The same thing that often happens. The rug got pulled and, after taking the stairs higher, gold took the elevator down.

On the chart below, be sure to note the big red daily candles of Thursday, February 2 and Friday, February 3. These types of reversal downdrafts are typically how gold rallies end. The Thursday candle came after the FOMC and ECB meetings, and the Friday candle came after the unusually crazy U.S. jobs report.

Lifting Gold Off the Mat_1

As February progressed, U.S. economic data continued to beat expectations and COMEX gold remained under pressure as the U.S. dollar index rose nearly 4%. The gold price broke its 50-day moving average and proceeded steadily lower.

However, as the month comes to an end, there are reasons to believe that the worst is over. First of all, and as we wrote last week, the first half of 2023 is expected to play out in a manner similar to 2010 and 2019...past years where Fed policy was shifting away from tightening and toward loosening and renewed QE.

As we move forward in 2023, expect the U.S. economic data to worsen toward obvious recession. This trend could begin as soon as next Friday, the 10th, with the next update on the U.S. employment situation.

But notice, too, a few other things about the current chart. First, COMEX gold has gotten extremely oversold with a Relative Strength Index that dipped last week to a low of just 28.

Lifting Gold Off the Mat_2

Next, be sure to note that, although COMEX gold broke its 50-day moving average a few weeks ago, the long-term trend of the 200-day moving average has thus far provided support. Gold has found buying support above the psychologically important $1800 level too.

Lifting Gold Off the Mat_3

Finally, while price has been generally moving sideways and consolidating since mid-2020, there have been other months that have actually been worse. For example, both February and July of 2021 saw monthly declines well in excess of $100. See below:

Lifting Gold Off the Mat_4

But now look at that chart again and be sure to notice what type of price action followed February and July of 2021. Did price continue sharply lower or did it slowly ease back higher within the overall range?

Lifting Gold Off the Mat_5

In conclusion: Yes, February was terrible and no fun at all. However, the U.S. is still barreling toward recession as the lagging effects of 2022's unprecedented Fed rate hike scheme eventually take hold. Though the COMEX gold price will continue to frustrate for a few more months, those willing to remain focused upon The Big Picture for 2023 and beyond will eventually be rewarded.



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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.


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