Is The Gold Bull Finally Back?
Gold Is Off To A Strong Start In 2015… Will It Last?
What a start for gold this year!
The yellow metal is up 9% year-to-date. Of all commodities, only silver has outperformed gold thus far in 2015 with gains of 17%. And keep in mind, these precious metals gains are coming despite the fact the US Dollar is surging to 11-year highs.
It’s an unusual situation. As you may know, gold tends to trade inversely to the US Dollar. In other words, when the greenback rises, gold falls.
But so far, this year is a different story.
Why is gold performing so well?
A lot of it has to do with the recent economic news out of Europe. Due to a stubbornly weak Eurozone economy, the European Central Bank (ECB) announced late last week they’ll start buying 60 billion euro a month of government bonds starting in March.
It’s an enormous quantitative easing (QE) plan that will likely stay in place until at least September of 2016.
What does it have to do with gold?
Investors are speculating the ECB’s action will eventually lead to inflation.
Of course, inflation levels of 2% are exactly what the ECB is aiming for. But much like gold’s big bull run to $1,900 an ounce in 2011, investors are betting European inflation eventually gets out of control due to massive money printing.
So this begs the question…
Is The Gold Bull Finally Back?
Despite the strong rally to start the year, gold still has considerable technical resistance to overcome.
Take a look…
As you can see from this 3-year chart, gold is rallying towards a technical down trend line (red line) that has kept the metal under wraps since mid-2013.
Until gold surpasses this red line, it’s hard to get overtly bullish.
And remember, gold rallied strongly in the first 3 months of 2014 before succumbing to selling the rest of the year. The yellow metal ultimately ended last year right where it started- $1,200.
However, There’s One Major Difference Between This Year And Last…
Last year at this time, the US Federal Reserve was just starting to taper back their quantitative easing program.
While there was considerable doubt whether the US central bank would follow through on their promise to end QE, they finally did it in October 2014.
All the while US inflation levels were running below the Fed’s target level of 2%- not what gold bulls needed for higher prices.
But now here we are…
Gold bulls are charging now that another massive round of central bank QE is just getting started. When the US Federal Reserve announced the adoption of the controversial stimulus strategy in late 2008, gold was trading at $800 an ounce.
By 2011, out of control inflation speculation carried the metal to $1,900- a 137% upwelling.
Here’s the question…
Will inflation speculation carry gold back to $1,900 based on the ECB’s QE program?
It’s tough to say.
However, one thing’s for certain…
Gold hasn’t seen this kind of central bank stimulus uncertainty for quite some time.
The situation could be exactly what the yellow metal needs to get back on its horse and ride to higher prices.
Of course, we’ll be watching the situation closely!
Until Next Time,
Justin Bennett
Commodity Trading Research
BIO: Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com. With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them. Sign up for our free reports and commodity newsletter at https://commoditytradingresearch.com/free-sign-up.
Category: Gold, Precious Metals
