Keep an Eye on the Numbers, Have a Strategy and Follow it

Let’s check in with our beloved gold position and see how it’s been doing since it took its biggest fall in decades and gave back 13% of its amazing performance in just four days. Now, first of all, there are many theories on why gold had this little flash crash. They range anywhere from the US government is trying to manipulate the price of gold to help underwater minors (doubt it), to some big hedge fund trying to manipulate the price of gold so they can buy it back cheaper (maybe, but I doubt it), to people all of a sudden believing that inflation is dead. Excessive money printing is good, and we should no longer be concerned with future inflation. So here is my honest opinion about what happened…I have absolutely no idea. It could have been a number of things, but what does it matter? Gold is the number one performing investment of the last 12 years, and the 3 things that drive gold, fear of inflation, geopolitical instability and distrust of government, are still 100% valid and actually more valid today than 2-5-or 10 years ago.

So, instead of speculating on the conspiracy theory of the day, let’s just look at the technical numbers that the traders look at who affect the price of gold from a short term volatility perspective. When gold fell back in April, it broke through a technical support level of 1525 an ounce, then another support at 1449 and then held above the next support at about 1300. It actually never even touched that one. So yes, technically, it started to break down, but here is the key: it almost immediately started to recover and rocketed back to within 6% of where it was before the correction. Also, the demand for physical gold actually cleaned out the inventory of many large gold dealers. That is a good sign, because it showed everyone who was speculating that gold’s run was over that the drivers of gold are alive and well. So, for you technical traders out there, the numbers to watch on gold are 1500 and 1525, which would be a complete repair of the technicals from a month ago. We’re only about 3.8% away, so keep an eye on that.

As for the S&P 500, yes, I know that we broke our old highs, BUT please don’t forget that it took us over 5 years just to break even with where we were in 2007. Since that point, we have taken on more than 5 trillion of new debt, our unemployment rate is the highest it has ever been this far after a recession and the government is the main driver behind the numbers. So, before you start celebrating, or even worse, increasing your risk exposure, just keep in mind a few numbers on the technical trading side, which is what the big money institutions that run the casinos watch every second of the day. The S&P 500 currently sits at 1634, which is a whopping 7% higher than where it was in July of 2007. See how less exciting it is when I say it like that compared to the financial entertainment channels popping champagne and cheering? Anyway, on the technical side, keep an eye on 1650, give or take 50 points either way. If the market does not convincingly break these levels, technically driven traders, which these days is like everyone, will likely sell into the summer and see what happens. So, be patient and stay alert because this is no time to start feeling like you are missing the party and shifting your assets blindly into the party. Have a strategy and follow it.

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Information presented in this blog post is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Discussions and answers to questions do not involve the rendering of personalized investment advice, but are limited to the dissemination of general information and may not be suitable for all readers. A professional adviser should be consulted before implementing any of the strategies presented.

photo credit: OneEighteen via photopin cc

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