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Is this the right time to own Gold?

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On August 10, Ray Dalio, chairman and chief investment officer at Bridgewater Associates wrote in a LinkedIn blog post that investors should own 5-10% of their assets in gold. There have been many such calls in the past seven years by different experts, which haven’t been profitable. Therefore, let’s evaluate the conditions and decide whether it’s the right time to invest in gold?

Golden points

  1. Gold has is a time-tested asset class
  2. Gold is a safe haven, though experts have differing opinions
  3. Any crisis emanating from China, Japan or Europe can see a risk-off trade being taken
  4. Geopolitical tensions are another catalyst for gold
  5. The downside is limited and clearly defined
  6. Buy in a staggered manner as it is difficult to nail the bottom

What is gold’s status as an asset class?

Gold, as a precious metal and as a medium of currency has a very long history. The first known gold coins were used somewhere in 6th century BC, while gold mining is believed to have started at least 7000 years old.

Even in the last century, the world’s major nations were following a gold standard. Many opine that it was the best system and there have been intermittent calls to return to the gold standard to avoid credit bubbles stoked by the central bank’s ultra-loose monetary policies. This shows that gold, as a form of currency or as an asset has withstood the test of time.

Why is gold perceived as a safe haven?

A safe haven investment is one, which retains and sometimes increases in value during tumultuous market conditions when the perceived risky assets lose value. However, the researchers differ in their opinion about gold’s performance as a safe haven investment.

In a study by Baur and Lucey (2010), the authors noted that gold works as a safe haven only for a short time, about 15 trading days and is only effective as a hedge against stocks and not bonds. In another study, Baur and McDermott (2009), found that gold performed both as a safe haven and a hedge against the US and European equity markets but not for the remaining developed nations and the emerging economies.

On the contrary, researchers in Ireland concluded in their paper “Reassessing the Role of Precious Metals as Safe Havens – What Colour Is Your Haven and Why?” that gold acts as a safe haven in turbulent times in many countries. This was because of the low correlation of gold with the other markets, as shown in the table below.

Gold MSCI World MSCI Asia ex Japan S&P 500 Japan JPM Global Bond
Gold 1 0.13 0.24 0.07 -0.09 0.55
MSCI World 0.13 1 0.84 0.97 0.71 0.29
MSCI Asia ex Japan 0.24 0.84 1 0.76 0.65 0.43
S&P 500 0.07 0.97 0.76 1 0.63 0.18
Japan -0.09 0.71 0.65 0.63 1 0.11
JPM Global Bond 0.55 0.29 0.43 0.18 0.11 1

Monthly data from May 2011 to May 2016

Source: Bloomberg and Stansberry research

Gold acts as a safe haven investment during times of political and financial market stress, however, its effectiveness reduces once the markets move towards normalization.

What is the current situation that benefits gold?

We have a political gridlock in the US. It is unlikely that the current administration will be able to push through critical tax reforms or be able to boost fiscal spending to a level that will accelerate growth. If the Fed tightens and takes steps to shrink its massive balance sheet without adequate growth, the stock market is likely to fall.

The central banks kept interest rates low for an extended period and printed astronomical sums of money to drag the economy out of the financial crisis. Many experts believe that the central banks have used up all their bullets, therefore the next crisis will be severe and will last longer. If such a situation happens, gold might be the only place to hide.

Japan and China are sitting on piles of debt. Any major crisis in either nation will be catastrophic and may lead to a risk-off trade, where gold will be a beneficiary.

Also, the heightened geopolitical tensions between the US and North Korea, the trade conflicts with China, the uncertain relationship with Russia, and terrorist attacks can quickly turn ugly, boosting a move towards safe haven investments.

Ned Naylor-Leyland, manager of the Old Mutual Gold & Silver Fund notes that gold completed a golden cross in December of last year. A golden cross is when the 50-week moving average moves above the 200-week moving average. Every time the golden cross has occurred in the past 30-years, it has led to a bullish move in gold that lasted at least for three years, according to Naylor-Leyland. In fact, the last time this occurred in 2002, after which gold embarked on a massive bull run.

What is the downside risk in gold if we are proven wrong?

As seen above, gold can protect your wealth in case of a black swan event. Therefore, keeping a certain portfolio in gold is a good strategy.

The risk is that the investment made in gold will not return a dividend or pay any interest. It will remain as a dead investment until you sell it. The US markets can extend their bull run for a few more years. Under such a circumstance the investment done in gold will be a wasted opportunity. If the risk on trade continues, gold will fall out of favor and may fall.

After understanding the fundamentals, let’s see what do the charts forecast.

What do the charts forecast for gold?

Long-term trend

Gold remains in a long-term uptrend. It completed a 50% Fibonacci retracement of the large upmove from $255.1 to $1923.7 and is currently stuck in a range between $1045 on the lower end and $1400 on the upper end.

Gold was similarly stuck in a range after topping out in 1980. Subsequently, gold remained in a trading range for about 21 years, before starting its next uptrend in 2001.

The present consolidation is already in its sixth year. If history repeats itself, gold may remain in a trading range for a long time before starting a new uptrend.

However, the downside seems limited. Therefore, traders can buy gold on dips and sell it on rallies near overhead resistances. All long positions should be protected with a stop loss of $1030.

If, however, the world faces any new financial crisis, gold can resume its uptrend and rally to new lifetime highs. However, it is difficult to pin point when this is going to happen. As many traders don’t want to hold their positions for the long-term, let’s analyze the daily charts for short-term buy setups.

Short-term trend

On the daily charts, $1300 is a strong resistance, as gold has returned twice from those levels. On the downside, $1200 is a strong support because gold has bounced twice from these levels. Therefore, a breakout of $1300 will most likely carry gold to the upper end of the larger range to about $1400 levels. On the other hand, a breakdown below $1200 will push gold down to $1120 levels.

However, as gold has been in a range and it has a history of long consolidations after a stupendous rise, long-term traders can invest in a staggered fashion.

First 25% of the proposed allocation can be done at the current levels. If, however, gold fails to breakout, the next 25% allocation can be done at the lower end of the range at $1200. We expect this level to hold.

The final 50% allocation can be done when gold resumes its uptrend. All stops should be kept at $1040 levels.

Our risk is defined, but if the world faces another financial crisis, gold is likely to rally to a new lifetime high.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 9 rated postsRakesh Upadhyay is a Technical Analyst and Portfolio Consultant for The Summit Group. He has more than a decade of experience as a private trader. His philosophy is to use technical analysis for momentum trading and fundamental analysis for long-term positions. Rakesh likes to keep himself fit by lifting weights and considers himself to be a spiritual person.




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2 Comments

2 Comments

  1. Dji127

    August 27, 2017 at 1:50 pm

    Awesome write up on Gold, thank you. Why did gold trade in the tight range between 1980 and 2001? Manipulation or?

    • Rakesh Upadhyay

      August 27, 2017 at 5:56 pm

      Hello Dji127,

      Thank you. No, the range was not because of manipulation.

      Gold is seen as a safe haven and a risk-off trade. The US equity markets saw some of their strongest gains between that period buoyed with a strong economy. Therefore, gold was out of favor and remained range bound.

      Thank you.

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Analysis

Ether Price Has a Good Chance of Rising Further

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On Wed July 18, Ether is falling, although the previously formed local uptrend still looks quite sustainable. The crypto is trading around $498, says Dmitriy Gurkovskiy, Chief Analyst at RoboForex.

Today’s morning, Ether rose above $500, which helped to determine the next important resistance levels. The bullish trendline at $480 that was formed yesterday is now confirmed on H1, and in case Ether is able to go above $500 shortly, its chances for going further up will increase.

Once Ether continues rising, it will quickly reach $525, and the current support levels will go above, too. As of now, Ether has some potential to rise till $550, according to D1.

For now, the key support for Ether is at $480, and once the crypto heads up, a new support at $500 will get active. $525 is still key resistance for now. The MACD is going up on D1, still in the negatives, and is issuing a buy signal, while the Stochastic confirms it, being in the positive territory.

ether

Among fundamentals and events that are important for Ether traders, one can mention the addition of Bitcoin and Ether to Purple Group. The company believes its customers will now have more freedom in selecting payment methods for running their transactions.

Another important news item is that the brokers using MT4 began offering cryptocurrency trading (at first, only Bitcoin, but then other cryptos were added). In most cases, the clients can trade CFD’s, although some brokers allow direct cryptocurrency transactions, too. This is a very interesting opportunity, as the investors trust MT4 and consider it a secure platform, so crypto trading added to it will be trusted, too.

With more products added to the platform, both direct crypto trading and CFD’s, more people will come to MT4 in order to try it. This is positive for both Ether and other altcoins.

 

Disclaimer:

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboForex shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 4 rated postsHaving majored in both Social Psychology and Economics, Dmitry went on to continue his education in post graduate. He then worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped him to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. Dmitry is a pro in the financial field who authors articles for various international media. He also holds the position of Chief Analyst at RoboForex.




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Analysis

Crypto Update: Monero Bullish Reversal on the Horizon

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The cryptocurrency world has come to life today. Bitcoin is leading the way, up by over 10% in 24 hours as it surged past $7,000. Other coins such as Ripple (XRP/USD), Litecoin (LTC/USD), and Bitcoin Cash (BCH/USD) have followed suit, growing between 5% – 10% in 24 hours as well. Looking at this cast of cryptocurrencies, it seems that Monero (XMR/USD) investors are missing out on this rally.

Not to worry because usually a rising tide lifts all boats in financial markets. In this article, we reveal why a major bull run is likely on the horizon for XMR/USD.

Monero Weekly Chart Looks Promising

A quick look at the weekly chart of XMR/USD and you can easily spot the formation of a falling wedge. The recent bounce from $120 support has given investors a good reason to be excited. After all, the rally has put the market in a position to finally breakout out of the falling wedge.

Weekly Chart of XMR/USD

Monero appears ready to take out the resistance level. The daily chart gives us glimpses on how this breakout might transpire.

Daily Chart Shows Bullish Two Scenarios

Switch to the daily chart and you’ll also see the large falling wedge in play. On top of that, it offers two possibilities regarding how Monero can break out of this pattern and launch a bull run.

XMR Breaks Out on Fear of Missing Out

Bitcoin, being the most popular cryptocurrency, often acts as a barometer for other cryptos. Its strength or weakness can influence how other altcoins perform. Bitcoin’s recent trend reversal might make Monero investors greedy. The fear of being left out might just be enough to take out resistance of $160.


This scenario is viable as the daily MACD reveals a bullish divergence and a bullish cross. In addition, the 4-day, 8-day, and 21-day moving averages are not acting as immediate supports.

XMR Breaks Out on Increased Demand

A more sustainable breakout is one driven by demand rather than greed. In this scenario, Monero respects resistance of $160 as investors see the bounce as a sell rally. This starts a waterfall event that would push the market down to key support of $85.

At this price level, demand exceeds supply. Plus, the falling wedge would be at its narrowest point.

The daily RSI offers support in this scenario. It is currently forming a rising wedge, which is a bearish pattern. Even if XMR climbs to $160, the RSI would likely be overbought by then. That could catalyze the fall to $85 support.

Bottom Line

Bitcoin’s resurgence can influence how Monero moves in the coming days. Investors might become greedy and push the market above resistance of $160. On the other hand, investors may see the recent bounce as a sell rally. This can drive the market down to support of $85.

Either way, a breakout is on the horizon. A bullish reversal is likely not a question of if, but when.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.6 stars on average, based on 201 rated postsKiril is a financial professional with 4+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




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Analysis

Crypto Update: Bitcoin Blows Through $7000 but Altcoins Still Lag Behind

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The relief rally in the cryptocurrency segment continued in earnest today, as Bitcoin still lead the way higher posting its best daily performance since April. The most valuable coin stole the show, although the whole market blasted higher, with the total value of the coins getting close to $300 billion, up by around 20% in a matter of days.

While the segment is still not out of the woods, BTC triggered a short-term buy signal in our trend model, as it overcame major resistance levels for the first time since May, finally showing some technical progress. That said, most of the majors are still stuck in, or right at the top of their trading ranges, and besides Bitcoin, buy signals are few and far between even considering the smaller coins, as correlations are still very high.

Trading volumes were also the highest in months, as especially Bitcoin triggered automatic orders while surging through several strong resistance levels. Bulls would still need further coins to join the break-out and fro now the long-term setup is still just little changed.

BTC/USD, 4-Hour Chart Analysis

BTC cleared the $6750, $7000, and $7350 levels in a bit more than an hour, and the epic short squeeze settled down near the latter resistance, for now. The coin is now on a short-term buy signal, and should a higher low form in the coming days, a new short-term uptrend could be established.

The coin needs to stay above the $7000 level to keep the signal intact, and given the relative weakness in Altcoins, the long-term outlook is still mixed. Resistance is now ahead between $7650 and $7800, while further support is at $6500.

Ethereum at $500 as Ripple Tests $0.51

ETH/USD, 4-Hour Chart Analysis

While Bitcoin is already above primary resistance, Ethereum is trading right at the $500 level, leaving the short-term trading range intact. The coin is close to triggering a buy signal, but it remains relatively weak and traders should wait for follow-through before playing a possible trend change. Primary support is still found at $450, with other levels at $420, $400, $380, and $360, while further resistance is ahead between $555 and $575.

XRP/USDT, 4-Hour Chart Analysis

With all of the majors registering large gains, and even some the recently weak coins like LTC, XRP, and Dash are trading near key resistance levels, further short-term buy signals could pop up in the segment, but until a confirmed new uptrend, traders should remain cautious with new positions.

As an example, Ripple is trading slightly above the $0.51 resistance currently, but a break-out is not yet confirmed, and the trading range remains dominant. Further resistance levels are ahead at 0.54 and $0.575, while support is now found at $0.49 and $0.45.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 293 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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