Sell Gold Between These Two Prices: $1,277 and $1,288

I love it when the mainstream financial press catches onto a good idea.

Because that’s how I know it will soon be time to sell.

Back in December, I jumped on the idea that gold was set to rally. If not just a corrective rebound, then a much-greater probability for a substantial climb than the financial press could imagine at the time.

Pattern analysis, including a comparison with year-ago circumstances, bore out my prediction.

So far, so good. Gold has gained more than 10% since its Dec. 14 low.

But now that everyone is “catching on,” I think gold could soon meet overhead resistance.

In fact, I’ll be looking to sell gold (or wait for a new buying opportunity) if the current rally hits a range between $1,277 and $1,288 …

Granted, I think any shorting of gold at these levels should be considered only in a short-term, active capacity. In other words, if you make a bet against it, keep a very close eye on it.

That’s because a new buying opportunity is likely to surface in the ballpark of $1,200 an ounce.

Yes, gold could extend the downtrend that dragged it down in the second half of 2016 … and in the year prior. But I think things are shaping up right now to have gold hit materially higher levels than $1,288, for example, before this year is over.

What Things are Shaping Up?

Perhaps recent comments from Bill Gross can shed some light. Last week, he basically said the central bankers cannot and will not abandon accommodative monetary policy.

Gross didn’t put the onus of accommodation on the Fed as much as he did on the Bank of Japan and the European Central Bank. He implied the Fed pretty much has no choice but to remain idle, with other conditions remaining the same.

His comments hinge very much on the same narrative I figured would help change the sentiment for gold in the early going this year. That is: The persistent overhang of debt would undermine everyone’s confidence in rate-hike expectations.

Here is an excerpt from comments I shared with my Currency Options Alert subscribers two weeks ago, when I recommended they jump on a new trade that plays this very narrative:

[Look] at how long Japan has festered in a low-interest-rate environment.

That’s 2.5 lost decades and counting, if you’re keeping track at home.

For comparison, here is the same chart for the benchmark U.S. interest rate …

So far, not quite a decade hugging the zero bound.

Oddly enough, it was about the same time after rates were taken to zero that the Bank of Japan took a chance to hike rates … just like the Federal Reserve is doing today.

That didn’t last long.

Have we not gotten ahead of ourselves? Are we reading too much into this supposed “path to normalization” rather than what seems more and more like the Fed simply trying to appease its critics, manage perceptions and soothe the markets?

I think we need to continue looking at what this debt overhang means for growth potential. For example, what it means for the U.S. government’s ability to spearhead an infrastructure spending program … which many market-watchers are widely expecting.

I think it bodes ill.

But rather than beat a bunch of dead economic horses that aren’t going to make a difference for you right now, I’ll just steer you to one thing that is worth worrying about …

Gasoline demand has been a major disappointment. It has fallen to lows not seen since 2012.

Source: ZeroHedge, Goldman Sachs

What’s going on?

Well, the glut of crude oil has become a glut of gasoline.

While that has implications for crude oil demand and refinery runs, it doesn’t explain the drop-off in demand. The only thing that could explain the drop-off — besides the smoke and mirrors of the refining industry — is that U.S. consumers are losing their appetite for spending at the pump.

And that’s happened while volatility in the price of gasoline has been relatively muted.

Should we take this as a warning sign of American consumers’ health?

If so, the sky is looking up for gold.

Traders, just be careful with your timing.

Do right,

Your thoughts on “Sell Gold Between These Two Prices: $1,277 and $1,288”

  1. Hi JR,
    Thanks for the article! If consumers aren’t buying gas, particularly if they’re cutting back according to the condition of their finances, that would suggest deflation – the price is dropping owing to lack of demand. I’ve been raised to understand that deflation is anathema to gold – what would drive the price? What’s the correlation between the lack of demand for gasoline and a spike in gold prices? Thanks for your insight,
    LW Williston

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“JR” specializes in trading commodities, currencies and options. He has spent nearly 10 years analyzing financial markets and writing about global economics. JR honed his trading techniques and global-macro worldview alongside his father, Jack Crooks, at Black Swan Capital. JR also…