Weakness in the U.S. dollar helped propel gold prices up again Tuesday. The price of an ounce of gold on the futures market pushed to the $2,040 level.
We haven’t seen this level of movement in gold prices since early 2020 – as the COVID crisis unfolded.
There’s a big difference between what happened three years ago, and why gold prices are moving higher today.
Let’s dig into the primary news around gold, and then offer some insight into when the optimal time to buy gold will be.
We’re Getting Stretched
Gold prices have rallied fast since early March. The ongoing banking crisis combined with a weaker U.S. dollar have provided significant support for the yellow metal.
But as I’ve previously noted, the trend for gold was clearly established during the significant pullback in October 2022. During the fourth quarter of last year, central banks bought more gold than at any point in more than 50 years.
There’s a major geopolitical divide happening. Nations like Saudi Arabia and China are moving toward settlement for commodities in their own native currencies.
There are even expectations that the so-called BRICS (Brazil, Russia, India, China, South Africa and other member nations) will move away from the U.S. dollar reserve system and press for a new centralized currency that allows them to engage in trade.
Trading Momentum
Gold has rocketed in recent weeks. If you’re going to buy gold for the long-term, then you’re not worried about price movements to the downside over the next few weeks.
But if you’re a trader, the noise around gold is very loud.
And we’ve seen really heavy momentum around price and volume over the last few weeks.
Looking at the momentum indicators below, we can see that gold is fast approaching overbought levels.
The SPDR Gold Trust (GLD), which attempts to replicate the performance of gold futures trading, has seen an explosion higher in the Relative Strength Index (RSI) and Money Flow Index (MFI) since early March.
Meanwhile, the MACD looks like it’s getting close to a reversal. This can fuel a possible profit sale as traders who have made nice gains sell, pocket the gains, and look for a lower price.
Pay very close attention to the RSI. If it breaks toward 30, that would signal oversold territory and a time to buy.
The same goes with MFI, which would suggest a rating of 20 on the 14-day reading for oversold conditions.
I have a long-term interest in gold, as it comprises about 4% of my total portfolio. But I’m wary about adding to the position right now with gold in elevated momentum conditions.
It’s best to take the time to learn how momentum indicators work. I’ll dig into the MACD, ADX, MFI, and RSI starting tomorrow.
Finally
I’ve said publicly that I don’t trust Goldman Sachs. Over the weekend, Goldman suggested that oil prices could go up to $95 per barrel in the short-term.
While I don’t disagree, I can’t help but notice a rather pronounced selloff in critical parts of the energy sector.
Refining names dumped hard on Tuesday, which is surprising since they benefit from wider spreads due to rising oil prices.
This was a classic “sell the news” story with OPEC cutting production. A lot of retail traders were pulled into the rally, but they’re now watching their trades and investments pull back.
This is a reminder to ALWAYS check to see if stocks are overbought in the short-term before making a trade. In the case of many energy names like Exxon Mobil (XOM), it was set up for a short-term pullback on a day like today.
If you’re buying into the energy rally, it’s all a matter of timing… and knowing where the value lies.
We have several great long-term energy plays that are coming out of oversold conditions that are ripe for big gains in the Tactical Wealth Investor portfolio. Learn more, right here.
To your wealth,
Garrett Baldwin
PS: Yesterday, I went live with a presentation on one of the best wealth secrets in the history of the markets. It’s the tool I’m using to buy one of the best stocks trading on the market at a massive discount right now. And I want you to join me.
Market Momentum is Yellow
The Russell 2000 took a big hit today as investors poured out of exposure to the U.S. economy due to concerns about higher oil prices, more inflation, and weaker consumer spending. We’re keeping a close eye on the situation, and we might need to add our hedge back on Tactical Wealth Investor. We’ll discuss these conditions over the balance of the month.
*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk.
