The market has recently pulled back and unfortunately its support did not hold, which increases a likelihood of further dip. As you can see below, the S&P 500 crashed its support level ( orange line ) and will now search for new support. I don’t know if it’s going to be one of the moving averages or it will consolidate sideways, but I know that this uncertainty is playing in favor of gold.
A price of gold has been consolidating for about a month since it has peaked over 2000. The consolidation is happening in a form of pennant. If the pattern completes, the price may go even higher. This happens in such situations as now, when the general market gets overbought and shows us pullbacks. Even a correction could happen due to a current no-easy situation in the US and Europe with Covid-19.
Here we can go into more complex market relationships to evaluate situation with gold. Most of the times, there is an inverse relationship between dollar and gold. When dollar goes down, gold goes up and vice versa. Below you can see the dollar is obviously in a bear market, it has recently broken its support level and searching for a new one.
Furthermore, a condition of dollar can be also interpreted with its counterpart – Japanese Yen. You can see a clear downward pointing trend line channel. This is a strong point and unless this trend is ended, the dollar will likely stay in rather lower levels. This again means higher levels for gold.
So what is worth doing now? Investing in gold stocks! Because higher gold prices mean higher profits for gold miners. Also Warren Buffet went long with Barrick Gold. There are many others, smaller ones that may yield fruitful profits. Check it out, I am going to try to publish some nice stock picks soon.