The first-half of the year is almost behind us, and what a start it’s been for stocks. Barring any hiccups, it’s going to be one of the best first-half starts for S&P 500 stocks in over two decades.
With the S&P 500 near all-time highs, you’d think there would less interest in other asset classes.
Surprisingly, flight to safety assets like gold are also taking off.
In fact, the shiny yellow metal is at six-year highs and comfortably trading above $1400 an ounce.
That said, there’s a lot going on that I need to tell you about.
This goes far beyond me just being Canadian, and trading gold miners and junior miners for a decade now.
I truly believe that gold is going to be in play for the rest of 2019.
Which means we’ll have plenty of opportunities to score base hits, like members in our chat room did earlier this week, with a 25% options winner in GLD, the ETF that tracks the price of gold.
Given the current political environment, the state of the economy, and the upcoming G-20 meeting…there is plenty to talk about and strategies to discuss on how to play gold.
Remember when gold was a forgotten precious metal?
Something that traders didn’t really care for because they were too busy focused on tech unicorns?
Well, those days are over.
Traders have been piling into the precious metal – sending gold price’s to a six-year high this week.
Just check out this massive move in $GOLD on the monthly chart (as of yesterday’s close).
This month alone, gold is up more than 9%… on pace for its best monthly performance since 2016.
Now, I actually made a video about my trade ideas, as well as gold… on June 20, 2019 in my video watchlist, as gold futures were catching a pop in the evening, which you can re-watch in the members section.
For example, when we spotted this potential move…
Heather Cable (part of Petra Picks) got into the action and bought SPDR Gold Trust (GLD) options. Basically, we were bullish and looking for gold prices to move higher… and she even alerted clients about the trade.
Heather bought gold call options on Monday…
… and by Tuesday morning, she was able to lock in 25% on those options.
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That said, with gold prices moving again… it makes sense to look at some of the factors that can spark another run in the precious metal.
How Gold Prices Move
Now, what’s been causing this spike in gold?
Well, there are a number of fundamental reasons for gold to rise.
If you don’t know, gold is considered a safe-haven asset. In other words, if traders and investors think the market will be weak, they’ll start to buy gold…
… and it makes sense as the markets just hit an all-time high, but there are growing political and economic fears.
There are a few reasons for the recent breakout of gold prices:
- The ongoing trade war.
- Political tensions.
- Potential for slowed economic growth.
Could the G-20 Meeting Spark Another Move in Gold?
One of the main reasons for this resurrection of the gold rush is the uncertainty around the U.S. – China trade war. The two leaders will be meeting at the G-20 summit which is set to kick off this Friday…
… and if the talks don’t go well…
…. it could result in more tariffs for both sides, which would weigh on economic growth and stocks.
You see, when there’s all this uncertainty, the markets look to safe-haven assets like bonds and precious metals like gold and silver. Since there could be more demand for GLD, if these trade talks fall through well, we’ve got a big psychological level coming up at $1,500.
If we see a break above that… the all-time highs in gold could be in play during the second half.
However, we have to wait and see.
Right now, traders are hoping that both sides could agree to hold off on new tariffs. However, we won’t know what will happen until next Monday.
Here’s a look at the probabilities of the outcomes for the trade talks.
Not only that, there are some political tensions going on between the U.S. and Iran, as the POTUS threatened Iran with “obliteration” if Iran attacks “anything American will be met with great and overwhelming force.”
With this added political tension, it’s another catalyst to keep an eye on because it can potentially cause gold prices to run higher.
Now, one thing the market has been focusing a lot on is the Federal Reserve.
The Fed Could Move Gold Prices
Traders are thinking the Fed could cut rates this year.
Well, that actually benefits gold prices.
You see, gold is not an interest-bearing asset. If interest rates rise and you don’t get a yield from gold… investors typically don’t like to hold this in their portfolio.
However, what happens when interest rates are lower?
Well, it actually hurts the U.S. dollar. In turn, this makes gold (which is priced in dollar terms) cheaper for foreign buyers.
If the market is pricing in lower interest rates, that’s actually a great thing for gold.
Not only that, if the market is right… and the Fed does cut rates, that means the economy may be weak… causing more traders to look to the precious metal to hedge against an economic downturn.
If you look at the hourly chart on GLD since June 20 (when I told Petra Picks clients to keep an eye on gold)… it’s had a pretty big move.
… and we could be setting up for another leg higher… but only time will tell.