CEA Monthly Issue – January 2015
Commodity Outlook: Gold
Something very interesting is happening in the gold market…
Despite a blistering rally in the US Dollar the past few weeks, the price of gold is holding firm. In fact, the yellow metal is trading nearly $40 an ounce higher than it was in mid-December.
Take a look at this chart…
As you can see, both the US Dollar and the price of gold are rising. The blue lines in the chart above confirm the short-term upward trends of both assets.
This is an unusual reversal of the traditional inverse relationship between the yellow metal and the US currency. As you may remember from gold’s weak 2014 performance, when the greenback rallies the yellow metal generally trades lower.
What’s causing this unusual burst of gold bullishness?
While the fundamentals still aren’t present for investors to aggressively buy gold, we simply can’t ignore the fact investors are pushing the metal higher.
Remember, there are growing concerns about the strength of the global economy. Even though the US is running strong, the same cannot be said for the Eurozone and Chinese economies.
I get the feeling investors are starting to realize global central banks will have to do much more to stimulate growth in 2015.
How can we profit from this information?
Instead of getting long gold, let’s buy the miners bringing the commodity to the market.
There are two advantages to buying miners instead of the metal right now. Firstly, gold miners are incredibly cheap. In fact, just over 50% of mid- and large-cap gold miners are currently trading below book value.
Secondly, our risk is very limited in buying them. As you’ll see in a minute, 52-week lows for a leading industry ETF were hit in November. This recent low will give us excellent area to trade off of.
I’ll explain a bit more about this trade in our upcoming monthly update. For now, just focus on buying the Market Vectors Gold Miners (GDX) at any price under $21.00!
Let’s look at a chart…
Technically Speaking:
As you can see, investors are already pushing gold miners higher in response to the recent uplift in gold pricing. If gold remains bid in early 2015, there’s a very good chance of GDX achieving the $27 area by mid-year!
WHAT TO DO NOW:
Market Vectors Gold Miners (GDX) is trading at $20.43
Buy GDX up to $21.00 per share
Our profit target is $27.00 or more
Risk Control Price is $18.39 (or a 10% stop loss from your entry point)
Category: Commodity Trading
