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Gold: The One Way Bet

Gold: The One Way Bet
(Kristina Afanasyeva/Dreamstime)

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Thursday, 20 June 2019 11:19 AM Current | Bio | Archive

Gold bulls everywhere are getting excited. For the last five years, the shiny yellow metal has been range bound and once again has eclipsed $1,350 per ounce mark.

This has been a technical ceiling with gold hitting these levels several times only to be knocked back down to earth by the Fed put, and what has been a one way bet in stocks for over a decade. That set up looks to have changed.

Gold has outperformed equities by 10% over the past nine months, and that’s with stocks at all-time highs.

“We are seeing a big pickup in demand,” said Kirill Zagalsky of Advantage Gold. “Investors are aggressively moving away from stocks at these levels and jumping onboard gold before it breaks out. The smart money is positioning for a weakening U.S. dollar with a rate cutting Fed, a G-20 meeting that is likely to disappoint, and an upcoming presidential election cycle that will generate tremendous volatility. Looks like it may be all systems go for a gold breakout.”

This time may very well be different. The Federal Reserve has turned from hawkish to dovish in just a few short months. They changed the language in their statement from “on autopilot” in October, and then replaced that with “remaining patient” language after stocks cratered in December, and in today’s statement replaced that language once again and are now “closely monitoring” a global slowdown. This dovish shift pointing to rate cuts in July saw the U.S. dollar slide and gold prices surge above $1,360 per ounce.

The set up for gold has not looked this positive in ages. “Smart money investors are betting big that gold will break out from these levels.” said Zagalsky. “The move could be strong. Traders are sniffing upcoming U.S. dollar weakness. When guys like Paul Tudor Jones, usually a big equity bull are calling for $1,750 gold price in the near term investors pay attention”.

Making matters even more interesting is the idea that it may be in Trumps best interest not to do a deal with China at the upcoming G-20 meeting. The logic? A China trade deal would likely be a positive for stocks. If Trump and Xi Ping agree to a deal, it could put the Federal Reserve on hold and Trump may not get the rate cuts he is so eager to see.

Could Trump play possum with China as a result? The smart money is now betting that any trade deal will now be on hold until after the Federal Reserve cuts rates in July or at the latest in September.

For gold bugs this looks like good news. The market now sees a completely dovish Fed and is pricing in a 100% chance of rate cuts in July, with the big question being will it be a 25- or 50-basis point cut. The Federal Reserve at this point is nowhere near raising rates. As a result the dollar looks poised to continue to slide.

Adam Baratta is the author of the national best-selling book "Gold Is A Better Way." He is one of the leading voices in the field of investments and precious metals today. Adam is the co-owner of Advantage Gold, the highest rated precious metal firms in the country, and the creator of an educational member site. To receive a free copy of his book, go to: https://goldisabetterway.com/

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The dovish Fed shift pointing to rate cuts in July saw the U.S. dollar slide and gold prices surge above $1,360 per ounce.
gold, one, way, bet, trump, fed
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2019-19-20
Thursday, 20 June 2019 11:19 AM
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