Institutional Insight Into Next Big Market Move: Profits To Be Had

February 29, 2016

What Is The Recent Move In Gold Telling Us?

February 29, 2016

Gold has been one of the best performing assets in 2016. The price of gold has surged from $1061.00 to $1250.00 since the start of the year. Generally, most traders and investors will look for gold to do poorly when the U.S. Dollar is strong, but recently gold has rallied higher despite the strength in the dollar.

Gold topped out in September 2011 at 1923.70 an ounce. Ironically, gold peaked the week after J.P. Morgan Chase upgraded the equity to $2500.00 an ounce. It is still amazing how these giant financial firms can still upgrade an equity at parabolic highs. As you all know, gold has declined steadily since the 2011 top. The precious metal has given back roughly 50 percent of its gain from the 1999 low to the 2011 peak.

What is causing gold to rally in 2016? Over the past few years most central banks around the world have followed the Federal Reserve in creating easy money policies. Recently, the People’s Bank of China, the Bank of Japan, and the European Central Bank have all began new forms of easy monetary policy. Japan and Europe have now moved to negative interest rates and this is something new that many investors are trying to understand and figure out. Hoarding money is very likely since many people will have to pay the bank to hold their money. In fact, Japan is seeing a surge in the purchases of safes. People are simply going to keep their money at home instead of depositing it with the banks. Many people will also rather have precious metals instead of holding lots of paper capital. These are just a few reasons why gold is trading at a high for 2016.

The current pattern on the daily chart of gold is neutral. This is because the precious metal have risen so much recently. At this time, gold looks to be trading sideways on a weekly chart. This sideways consolidation pattern could lead to another break-out down the road. In fact, most of the recent sell offs in gold have resulted in reversal moves right back up to the highs. This is bullish action overall since the equity cannot pullback from its overbought condition. The price action in gold is telling us that there is something bigger going on globally regarding the financial system. Traders and investors should continue to keep a close eye on gold as an important asset class in 2016. Some ways to trade gold are by using the SPDR Gold Trust (ETF)(NYSEARCA:GLD), iShares Gold Trust(ETF)(NYSEARCA:IAU) and the Market Vectors Gold Miners ETF(NYSEARCA:GDX).




Nick Santiago

Chief Market Startegist

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