Gold and silver on their way up - what's to stop the move higher?

Giles Coghlan LLB, Lth, MA Financial Source

Profit takers on gold again?

It was a rumour that I heard last Friday and caused me to close my short term gold longs, namely that equity investors were cashing out their profitable gold positions to pay for their equity margin calls.

Ok, that makes sense, in theory. The price action was very weird, so I closed my short term longs. Yet, I am not convinced because I haven't seen the evidence for it. However, for the sake of argument, let's assume it is correct. Could the current environment for gold still see gold sellers - like last Friday?

Well, if the rumour is correct - we shouldn't expect lightning to strike twice. Those investors who had their margin calls have serviced them and presumably adapted to present market positions - deleverage and widened stops. Another drop in equities should only support gold buyers.

Good conditions for gold buyers

It is hard to see a better picture for gold buyers at the moment. I loaded up gold and silver longs again after the Fed cut rates this week by 50bps. Record low US bond yields, with 10-year Treasuries below 0.9%. A weak USD as the futures market looks for further cuts on March 18. A flight to safety as JPY, CHF, and gold all find buyers. I am expecting overhead daily resistance to crumble without a fight.

After all, who would be selling gold as the world's central banks cut rates one by one in double-quick time? Furthermore, coronavirus cases will continue to grow all weekend. Who fancies being risk 'on' into that? If anyone closed gold positions on Friday, like I did. Surely they have loaded up after the Fed cut rates by 50bps? Looking at the equity markets and US bond markets this AM - the case for more upside is golden.

As a final note - don't forget silver. It is still very cheap relative to gold.

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Author

Giles Coghlan LLB, Lth, MA

Financial Source

Giles is the chief market analyst for Financial Source. His goal is to help you find simple, high-conviction fundamental trade opportunities. He has regular media presentations being featured in National and International Press.

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