Well well well! What is happening in the gold market? $1,260/ounce was a big price level for gold, according to The Fleet Street Letter Investment Director Charlie Morris. Why? He explained in the interview I did with him last week.
If you don’t have time to watch the interview (it’s about 30 minutes long), the short answer is this: $1,260 is a 20% rally from gold’s December 2015 low of $1,050. Charlie’s “20% rule” is that bear markets in gold don’t end until gold has broken through and held the 20% level from the lows.
Now, check out the chart below. Gold closed above $1,260 in US trading yesterday. It climbed overnight and now sits at around $1,276. That’s a 20% rally on a year-to-date basis. And now the yellow metal is 21.5% above the December lows. The bear market is over. But has a new bull market begun?
Charlie has a lot to say on that in the interview we did. Inflation is a big part of the story. And on that score, this week’s action in the US dollar is telling. The “stealth devaluation” of the Chinese yuan, via the dollar, ought to be bullish for gold and other commodities. That’s exactly what you’re seeing.
First, the macro US data certainly don’t support a stronger dollar. US first quarter GDP grew at just 0.5% in the first quarter, according to Department of Commerce data released. Consumer and business spending were both down. Ouch.
The “American expansion” is now at its slowest pace in two years, according to Bloomberg. Enter, stage right, former Rio Tinto boss Tom Albanese. He’s calling the bottom in the commodity market. Take it with a grain of salt. Albanese is the man who, as Rio’s CEO, rejected a merger with BHP Billiton in 2008.
Rio instead spent $38.7 billion acquiring aluminium producer Alcan. It then watched the value of that acquisition fall by 50% during the commodities crash. Still, yesterday he said that, “I believe with what we’ve witnessed early in 2016 will be the trough for the commodity markets… Commodity prices have improved materially in the last couple of months, and investor sentiment has started to turn cautiously positive on the resources sector.”
If you prefer your stories with pictures, have a look below. Is it a changing of the guard? Is it a top in the dollar and a bottom in the commodities market? It’s a big story.
Source: Bloomberg
Category: Market updates