When we’ve discussed gold stocks and the price of gold lately, we’ve hinted at “healthy consolidation”. That’s typically seen after such a big move in price and the stock or commodity reaches exhaustion. The early buyers are content with a portion of their portfolio values and they take profit.
While this isn’t necessarily a bad thing, what is not so great is when other market forces are at play. During the last few sessions in the market this month, we saw the price of gold pullback from its historic, all-time high of $2,089.20. Where most assumed that consolidation would come at some point, I don’t think anyone could have prepped for what we’ve seen recently.
If you look at last Friday and Monday, we saw what I think was that “healthy consolidation”. There wasn’t a huge, panic sell-off, rather a calculated decline in price that I think was to be expected. However, news of a potential vaccine on Tuesday compounded that “consolidation” into an all-out sell-off. Gold prices didn’t stop the decline until nearly breaking below $1,921. That effectively erased all of the gains from August and the majority of those from late July.
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What’s more is that we also saw U.S. treasury Yields climbing. The moves came as Russia’s President Vladimir Putin said the country developed a “safe and effective” COVID-19 vaccine. Analysts at Bespoke Investment Group noted the SPDR Gold Shares ETF (GLD ETF) recently broke out above a prior high at $184.59. This was a mark that held for nearly 10 years. Now, the team wrote, “traders will look for the $184.59 level to act as support instead of resistance.”Is This The End For Gold Stocks & Bullion?
Edward Moya, a senior market analyst at Oanda, said in a note that traders have been “looking for an excuse to lock-in profits.” He also explained that, “It didn’t matter that this was somewhat telegraphed or that the Russians have only begun the Phase 3 trials,” gold “was ready for a selloff.”
It didn’t seem that any gold stocks were spared on Tuesday. All major gold ETFs slumped during normal trading hours on August 11th. Among top gold stocks, Barrick Gold (GOLD Stock Report), Franco-Nevada (FNV Stock Report), and AngloGold Ashanti (AU Stock Report) all pulled back to or even below a major technical level; the 50 Day Moving Average.
This has been a key level of support for countless gold stocks since the March sell-off. Unlike that time, however, gold didn’t sell-off because investors made a flight for cash. It sold off on vaccine hopes and treasury rates. Today real rates clearly moved higher and that’s clearly what moved gold lower,” Michael Widmer, head of metals research at Bank of America Merrill Lynch, said by phone from London. “You had stronger PPI data out and I think when that data came out the market had another look at rates and expectations.”
“It’s quite abrupt and brutal, but the price increase before was even more abrupt and brutal,” Carsten Fritsch, a commodity analyst at Commerzbank AG, said by phone to Bloomberg. “The trigger could be the sharp rise in bond yields, which caused some profit-taking and then that cascaded. When people start to take profits, more will follow, and so we see this acceleration of price declines today.”Gold Price: $2,400 to $3,000 By 2021?
However, this doesn’t rule out new highs for gold according to some analysts. Widmer explained that currency and fiscal policies haven’t gone away. “Implicitly and explicitly, central banks are backstopping governments at the moment, and I think that’s really the bullish firmness behind that $3,000 per ounce call.” – an 18-month target.
Others like Tom Fitzpatrick have a slightly different take. He’s a Citigroup technical analyst who gave his views on a call with Bloomberg.
“I think the underlying, fundamental, positive reasons for gold haven’t gone away. Once the momentum in this lags, we’ll probably consolidate for a while, but we still think we might find ourselves back up at $2,400 by the end of the year.”