Is gold headed to new all-time highs?

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August 28, 2019 11:04am NYSE:GDX NYSE:GDXJ

NYSE:GDX | News, Ratings, and Charts

From Andrew Hecht

  • Gold holds the $1500 level and plows higher

  • The Fed sounded dovish in Wyoming, but it was not enough for the US President

  • The high-stakes trade war is bullish for gold

The price of gold broke out to the upside following the June meeting of the US Federal Reserve. The Federal Open Market Committee indicated that short-term US interest rates would decline by the end of 2019. The more dovish approach to monetary policy was a departure from the path of rates in 2018. Last year, the FOMC acted four times to increase the Fed Funds rate by a full percentage point. Meanwhile, other central banks around the world kept rates at artificially low levels.

The prospects for a return to a more accommodative approach to monetary policy in the world’s leading economy lit a bullish fuse under the gold market. The precious metal broke above the critical level of technical resistance at the July 2016 high at $1377.50. When the Fed pulled the trigger on July 31 and lowered the short-term rate by 25 basis points, gold moved to over $1500 per ounce for the first time since the first half of 2013.

The SDPR gold shares product (GLD) is the most successful commodity ETF in history with net assets of almost $38 billion.

Last week, gold was hovering around the $1500 level waiting for news from the Fed and its Chairman Jerome Powell. On Friday, the Fed did not send the market the uber-dovish message many had been hoping for and even expecting. However, China slapped the US with $75 billion in new tariffs, which lit a bullish fuse under the gold market and sent the price of December futures over $30 higher.

Gold holds the $1500 level and plows higher

Gold took off on the upside last Friday as news from China overshadowed Fed Chairman Powell’s speech in Wyoming.

(Source: CQG)

As the daily chart of December COMEX gold futures highlights, after trading as low as a few bucks above the $1500 level on August 23, the price took off on the upside reaching a peak at $1540.30 per ounce. At the high, gold futures were only $5.80 lower than the August 13 peak. On Friday, gold closed not far below the highs of the session. Price momentum and relative strength are both in the upper region of neutral territory, which means the yellow metal could have more room on the upside this week. Open interest at around the 600,000-contract level is flatlining, but it remains at an elevated level. The bull market trend in gold is strong, and the yellow metal looks headed for higher highs. The next technical target could be at the April 2013 high at $1602.60 per ounce.

The Fed sounded dovish in Wyoming, but it was not enough for the US President

Chairman Powell told the world that the US Federal Reserve would do what it takes to maintain economic growth in the US. However, he stopped short of indicating the central bank would cut interest rates at its next FOMC meeting. At the gathering in Jackson Hole late last week, it became clear that there is some division between the voting members of the committee when it comes to cutting rates by even 25 basis points. However, the escalation of the trade war likely guaranteed that at least a one-quarter of one point move is on the immediate horizon.

Meanwhile, President Trump continued to criticize the Fed and its Chairman. In one tweet, the President wrote, “…My only question is, who is our biggest enemy, Jay Powell or Chairman Xi?” The quote speaks for itself.

The high-stakes trade war is bullish for gold

Markets are nervous, and the uncertainty will grow as the trade and currency war between the US and China escalates. The stock market fell sharply on Friday, as did the prices of many industrial commodities. The growing protectionist wave threatens to thrust the world into what could be a prolonged economic slowdown forcing the Fed to lower interest rates back to zero percent or even lower.

Since June, the gold market has rallied on the prospects for lower interest rates and the increase in tension between the US and China. With both sides digging in their heels on the trade front, gold could continue to fly to the upside over the coming weeks and months.

Meanwhile, gold has been rallying in all currencies. As of the close of business last Friday, the yellow metal was within 10 euros of a new all-time peak in the European currency. How long will it be before the precious metal challenges the record level in US dollars at $1920.70 per ounce?

The SPDR Gold Shares (GLD) was trading at $145.02 per share on Wednesday morning, down $0.55 (-0.38%). Year-to-date, GLD has gained 17.28%, versus a 8.31% rise in the benchmark S&P 500 index during the same period.

GLD currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #1 of 33 ETFs in the Precious Metals ETFs category.

This article is brought to you courtesy of

About the Author: Andrew Hecht

andrew-hechtAndrew Hecht is a sought-after commodity and futures trader, an options expert and analyst. He is a top ranked author on Seeking Alpha in various categories. Andy spent nearly 35 years on Wall Street, including two decades on the trading desk of Phillip Brothers, which became Salomon Brothers and ultimately part of Citigroup. Over the past decades, he has researched, structured and executed some of the largest trades ever made, involving massive quantities of precious metals and bulk commodities. Aside from contributing to a variety of sites, Andy is the Editor-in-Chief at Option Hotline.

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