Gold price has been so bad that it’s now starting to look good

August 8, 2018

London (Aug 8)  Back in mid-July we discussed the summer gold trade. Should you take the plunge, attempt to catch the golden knife that was falling, and buy gold with a view to off-loading with a 10%-20% sometime in the autumn on winter?

The overall message was one of ambivalence. It didn’t quite feel right. The timing was off. It looked as though gold had further to fall.

Such sentiment was well placed. At the time, gold was $1,227. This week we hit $1,204.

But this week, however, may be the time to risk the summer trade in gold.

Eight reasons to buy gold now

Just for clarity’s sake: I’m not calling the start of a great new bull market in gold, much though I would like that to happen. Rather, we are looking at a flip trade between now and sometime in the autumn or winter.

Moreover, none of these reasons – US dollar aside – are enough on their own. It is the coincidence of all of them – their aggregate – that makes the trade so tempting.

Gold is usually, though not always, the opposite of the US dollar. If the dollar is strong, gold is weak; if the dollar is weak, gold is strong. That has been the case these last few months with the extraordinary rally we have seen in the dollar, which has put the heebie jeebies up just about everyone. But the dollar rally may have run out of steam.

Here is the US dollar index, which measures the dollar against the currencies of the US’s major trading partners – the euro, the yen, the pound, and so on. You can see it has met some resistance in the 95 area.

US dollar chart

Not conclusive, I know, but 95 has been a barrier for over two months now. The dollar could be due a retreat, which would mean gold is due a rally.

The direction of the dollar is the single biggest determinant of where gold goes next – more important than anything else I mention below. If it rallies through 95, bets are almost certainly off. The dollar is the biggest risk to gold.

That said, consider my other seven reasons to buy gold.


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