We talked about gold late last year, remember?
It all started with this article from Bloomberg, identifying a huge trend in the world’s Central Banks buying gold as they were preparing for the Federal Reserve to pivot interest rate policy.
Last week, Chairman Jerome Powell indicated that the pivot was coming, which is setting gold up for its next breakout.
But there’s more than the Fed driving the price of gold higher.
Geopolitical concerns, the upcoming elections in the United States, and lingering fears of an inflation – despite the Fed’s improved outlook – are all driving a larger group of buyers all the way down to Main Street into what has long been known as the best all-around hedge for investors.
Just look at what happened last week.
A small core of House Republicans vowed all revenge immediately after the passage of their latest spending bill. The move now threatens another Speaker’s job.
Put simply, investors are tiring of the political risks associated with the market, and they’re looking to hedge with gold.
Want proof?
Costco (COST) started selling gold late last year. Near the end of the quarter, it was reported that the company had sold more than $100 million in gold bars.
The company was literally selling out minutes after they loaded a new inventory of gold bars on their website.
Demand has continued to be so strong that the company is now selling silver coins, another hedge against inflation and the Fed.
For what it’s worth, silver prices are also poised for a breakout rally, but we’ll talk about that later this week.
But interest rates… interest rates are going to be a longer-term catalyst for higher price for the “Yellow Metal.”
The last time that we saw the Fed shift into an interest rate easing cycle was in 2007.
You remember, the Fed was moving quickly to try to put out the fires that had started in the banking system because of the housing boom.
Ben Bernanke, the Fed Chairman then, took rates from 5.25% to 0.25% in two years’ time.
During that time, the price of the SPDR Gold Shares (GLD) increased more than 37%. Of course, we had an economy that was moving into a recession, but things are feeling a little more dire outside of the economy and markets, adding to the “big if” for gold.
When I add the other factors already mentioned to the equation, the outlook for gold continues to be bullish.
We’ve just seen the short-term chart complete a consolidation after rallying 7% after their last breakout.
The consolidation, which started on March 7, strengthens price support at $200 for the GLD shares ($2,200 for physical gold) as the precious metal prepares for what is likely to be another 5-10% push higher.
Expect to see the appetite for gold become even more voracious as the elections nears.
Volatility in our political system – like what we are seeing with the potential ouster of Speaker of the House Mike Johnson, the second Speaker in as many years – is beginning to wear thin on investors, making a strong argument for holding long-term hedges like gold into and past election day.
Bottom Line
I’m targeting another 20% upside for gold and the GLD shares as the market begins to prepare for potential unrest ahead of and after the election.
In addition, the Fed’s unwinding of interest rates will also provide fuel for gold’s rally.
This simple hedge looks to be more valuable to a portfolio for the next two years.
About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.