Readers know about the recent action in gold prices. The dollar price of gold moved from $1,270 per ounce to $1,440 per ounce from late May to late June. That’s a 13.3% gain in one month, which annualizes to a 160% return.
Of course, gold is likely to level off a bit until we get more clarity from the Fed about interest rate cuts. That’s fine; gold is holding above the $1,400 per ounce level and a gain is a gain.
Gold has traded in a narrow range for the past six years. Since 2013, gold has bounced off of lows around $1,100 per ounce and retreated from highs around $1,370 per ounce. The highs were reached on occasions like the Brexit vote in June 2016, and lows were hit after Fed rate hikes led to a stronger dollar (which means a lower dollar price for gold).
Despite the volatility, gold stayed in that $1,100–1,370 range. That’s over. With gold’s breakout, it’s out of the range to the upside and seems able to hold that level.
The precious metal has had baseline support because of huge purchases by the Russian and Chinese central banks as well as facing head winds because of Fed tightening and the strong dollar. But with the recent Fed pivot toward monetary ease (by leaving the door open to rate cuts and ending quantitative tightening), the head winds are gone while the buying support remains. That’s a great setup for further gains.
There’s no better evidence for this change of sentiment than this article about “Bond King” Jeff Gundlach. The Bond King is a well-known market guru with a great reputation for profiting from bond market moves. He also trades stocks and currencies when the opportunity presents.
The fact that a noted bond and currency trader is moving into gold is obviously bullish, but it reveals a deeper truth. Gundlach is treating gold as a form of “money” rather than a commodity. That makes sense and is the best way for all investors to think about gold.
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