January 31, 2018
After gaining nearly 14% in 2017 and posting its best annual gain since 2010, COMEX gold looks poised to move higher this year and finally break out in its renewed bull market.
A number of factors have played a role in gold's rise from the bear market lows of December 2015. Among these are:
• a generally falling USDJPY and Dollar Index
• continually low global interest rates
• lack of fiscal discipline in the United Sates
• geo-political uncertainty around the globe
As we move into 2018, factors pushing gold higher will include political risk in the US, continued geo-political risk and a growing trend toward de-dollarization. We wrote about these themes a few weeks ago and you can find the column here: https://www.sprottmoney.com/Blog/the-three-major-t...
These "risks" will help further drive down the value of the US dollar. A falling dollar will, in turn, spark a continued rally in commodities. Active money managers will seek to allocate assets toward the commodity sector and away from overvalued sectors such as equities and bonds. This soon creates a virtuous cycle of higher highs and higher lows as the renewed bull market is perceived and grudgingly accepted.
Though the bear market bottom of December 2015 is now clearly visible in hindsight, not many folks were able to see the turn at the time. The same will be said for the breakout and resumption of the bull market. So, how and when will the average gold investor know that price has finally turned the corner? When we look at the chart, we get a rather clear answer.
Below are weekly and monthly charts of COMEX gold. As you can see, over four years have been spent building a broad and rounded bottom. A breakout from this bowl will occur as price moves up and through $1,400. After a successful test of $1,400 as support in the days that follow the breakout, new and even higher highs will confirm that much higher prices are ahead.
Also driving this move higher is a confluence of positive technical factors. Note that COMEX gold's 50-week moving average is above its 100-week, and that both are above the 200-week, while all of them are sloping higher. This technical configuration prompts the commodity trading funds to be biased long and buy on the dips, also creating a virtuous cycle of higher prices.
So relax, be happy and prepare for higher gold prices in 2018. The move through $1,400 will set up a move toward $1,525. An eventual break of $1,525 will set the stage for a move to the old 2011 highs, perhaps as soon as next year. The time to position yourself to take advantage of this renewed bull market is now.