With global stock markets under pressure, many investors are looking into safer alternatives for their money. The US dollar has long been seen as one such safe-haven, with the Swiss franc being another major one. However, with the dollar having already rallied for most of the year, and now facing resistance, it may be time for another asset may to have its turn in the spotlight: Gold.
Although a recovery in stock prices have already started after the crash from early October, the S&P has broken down from its uptrending trading range, and is currently trading at levels not seen since July this year. The future looks a lot more volatile than the bigger part of this year has been, as traders now try to figure out what to expect from the stock market as we approach the end of the year. All of this points to gold as an asset that will get a lot more attention from investors going forward.
Physical demand pushing up prices
Physical demand for gold increased in the third quarter of 2018, the World Gold Council reported in early November. The demand largely came from buying of gold coins and bars by individual investors, as well as central banks, which is now at the highest level since 2015. ETFs, however, saw net outflows during the quarter as a result of investors in the US shifting their focus to the strong stock market and higher interest rates.
Interestingly, China stood out in terms of physical demand for gold bars and coins, with a rise of 25% from last year, which experts attribute to a volatile stock market and weakening Chinese yuan.
Technicals suggest higher prices
With the strong physical demand for gold as a backdrop, let’s take a closer look at the technicals of the gold chart.
Looking at gold from a charting standpoint also suggests that the market has already formed a bottom, and that higher prices can be expected to follow for the yellow metal.
First of all, the characteristic candlestick with a long “wick” sticking out below a small “body” in mid-August is a typical bottom formation. Following that, we have now seen three consecutive higher lows in the market, as indicated by the red curves in the chart. Remember that consecutive higher lows and higher highs is the very definition of an uptrend in a market.
A chart like this is exactly the kind of market conditions trend following traders look for to ride the trend higher. This is also probably the approach that is the easiest for most independent traders to implement in the gold market.
The moving average indicator can also be helpful for trend traders who are looking to ride this trend higher. For example, a popular strategy is go long in a market once the 50-day moving average line crosses over the 100-day moving average line, and exit the market when the opposite happens. As can be seen in the chart, gold is now very close to that level, which means trend traders should be watching this market closely in the next few days.
With all of these factors pulling together, we may be looking at the very beginning of a new bull run for what is widely considered the world’s most stable asset – gold!