A little over a week ago, we talked about how Speaker of the House Mike Johnson should be buying gold.
And then, in December, we talked about how the world’s Central Banks were hoarding gold…
Now you see why.
This is a rally that is being driven by a rare best/worst case situation.
Gold is considered not only a precious metal and a store of value, but also an industrial metal.
Like silver – another precious metal that I suggest adding to your portfolio – gold is used in a number of industrial production processes.
Medical devices, electronics, automotive applications, defense technology… it’s endless!
The industrial application of gold means that economic growth will increase demand from the production side of the economy.
That’s just one of the “best” situations, a growing economy sparks demand for gold.
Gold is better known for its worst-case situations, which is a hedge against inflation, the economy, and market rattling events.
This is clearly the driver right now.
I laid out the Goldilocks situation that stocks have been lulling in and how that’s ready to break.
World tensions, rising commodity prices (A.K.A. inflation), political tensions at home… it all adds up to a bullish case on gold, and the chart says there’s still time for this bull to run higher.
Here’s your chart on the SPDR Gold Trust (GLD) shares. In my opinion, this is the easiest way to take a position in this “gold rush.”
I’ve left an additional indicator on this chart that you aren’t used to seeing. The pink bands are the Bollinger Bands for GLD. They indicate when a stock has started a volatility rally or selloff. In this case, it’s a rally.
Let’s break the chart down.
The 50-day moving average for GLD turned bullish in Early March as it started to trend higher.
Historically, this means that GLD shares have a 67% chance of closing higher each trading day. Read that again, it’s a great stat.
Similarly, the 200-day moving average for GLD is bullish. This tells us that momentum for the next four to six months favors the bulls.
Hmmmmm, what’s happening in four to six months? Oh yeah, the elections! There’s your “Political Risk” catalyst matching up with the charts.
So, let’s break down two periods in terms of price targets.
First, the four-to-six-week outlook – The current volatility rally will result in a target price of $220 for the GLD shares. From there, we’ll see a short-term consolidation or even a small correction before the summer rally for gold kicks in.
The three-to-six month outlook for GLD – The recent rally just took out the old 2014 highs for GLD ($190), so we’re being fueled not only by the market factors, but sentiment of a stock or ETF making new all-time highs. Round numbers begin to dictate support and resistance levels at this point.
That in mind, the long-term trend has a target of $250 for the GLD shares as we head into what is likely to be a tumultuous summer of trading. Domestic and geo-political tensions will continue to fuel the move in gold, while the very likely return of inflationary conditions will give this asset a kicker.
