The secular gold bull market that has been lingering in a cyclical bear market for the past 4-and-a-half years is back.
Gold hit a high of $1279.60 an ounce Friday morning as investors piled into gold-backed ETFs and gobbled up shares in individual gold mining stocks.
Secular gold bull market resumes
Now, while gold’s close on Thursday represents a more than 20% rise from its low of $1,052.94 an ounce in December, this isn’t the only reason gold is back in a bull market. Below are three reasons gold is back in a bull market and here to stay:
- Technical indicators have turned bullish.
- ETF inflows are soaring.
- Negative interest rates have left investors with limited options.
Let’s take a look at gold’s technical indicators:
The so-called ‘golden cross’ is not a myth. When the 50-day moving average surpasses the 200-day moving average, from a technical standpoint, a bullish indicator is signalled. This happened yesterday with gold and means gold will likely continue higher now that it has broken above this trend line. $1,300 is another psychological barrier and once gold breaks through that level, expect it to continue moving higher.
ETF inflows point to gold bull market
Physical demand for gold is soaring as ETFs that have to back their paper with gold scramble to buy more gold.
“At some 1,735 tonnes vaults have not been this stacked since January 2014 and nearly two years of outflows have poured back in.”
Considering it is only March 4th and 277 tonnes have already been stacked – 2016 could be the biggest inflow year ever for ETFs. If the pace of gold stacking (which is now at the highest since Jan 2014) is not a sign sentiment has completely reversed and we have shifted back into a bull market, I’m not sure what is.
A Zerohedge.com article highlighted another of the world’s largest gold-backed ETFs, BlackRock, rushing to acquire more physical gold. Below is an excerpt:
“BlackRock’s Gold ETF (IAU) has seen fund inflows every day in 2016 (no outflows at all) and with the stock trading above its NAV for most of the year, the world’s largest asset manager has made a significant decision:
*BLACKROCK SAYS ISSUANCE OF GOLD TRUST SHARES SUSPENDED
*BLACKROCK SAYS SUSPENSION DUE TO DEMAND FOR GOLD”
The gold markets are on fire as capital flows back into the junior gold space. In our latest EBook we reveal 50 leaders who took small-cap stocks to stunning multimillion and, in some cases, billion dollar buyouts. The companies these leaders run today are described in this one of a kind rolodex of some of the top entrepreneurs and business minds in the small-cap mining, technology and energy sectors.
Banks are forcing investors out of savings accounts and paper assets.
Lastly, we have the banking sector. With interest rates going negative and the stock market looking awful frothy, where can investors turn? The economy is barely growing and with a recession long overdue investors are embracing the safe haven aspects provided by gold.
Joni Teves, an economist at UBS, commented:
“The risk that increasingly negative rates push banks to start charging customers for deposits would have a greater positive impact on gold, particularly if concerns build up that further lower rates could start to affect household savers.”
Case for Gold Bull Market intact
So, between physical demand for gold soaring in respect to ETF inflows, the technicals pointing to an extremely bullish pattern and the banks offering few alternatives, due to negative real interest rates, gold is outshining many asset classes at the moment. Yes, gold is up more than 20% from its December low; but, there are many factors, including the three I’ve just outlined, which support higher gold prices and the resumption of the secular gold bull market. I am expecting the metal to continue to perform well and to break above $1,300 an ounce in the coming trading sessions. Welcome back gold, you’ve been out in the cold for some time.
This article represents solely the opinions of Alexander Smith. Alexander Smith is not an investment advisor and any reference to specific securities in the list referred to in the article does not constitute a recommendation thereof. Readers are encouraged to consult their investment advisors prior to making any investment decisions. The information in this article is of an impersonal nature and should not be construed as individualized advice or investment recommendations.