A couple weeks ago, a market reporter for the well-known financial site Investopedia contacted me to talk about gold. The reporter asked a number of good questions, and we went down a number of market paths including the cash index, June futures (as well as deferred contracts), and a variety of Exchange Traded Funds (ETFs). As pre-interview homework, I did some research on a few ETFs and found SPDR Gold Trust, tracking the LBMA Gold Price as a benchmark, as the one to focus on (there are plenty of others). Those of you familiar with my analysis and commentary will recall I like to use a cash market, the intrinsic value, when I can. 

Six months ago, shortly after Palestinian militant groups led by Hamas launched an attack on Israel, I posted a piece on Barchart discussing what might be the better safe haven market for investors: Gold or Crude Oil. Regarding the latter, historically when wars get going in the Middle East, crude oil has been the market of choice. This time seemed different, though, as there is more going on behind the scenes than the usual religious differences leading to violence. There seems to be something larger at stake, namely the continued systematic attempt to destabilize global political and economics. Given this, it is not surprising the Gold Cash Index has increased 33% since the end of last September while spot-month Brent crude oil is showing basically no price change. With that as a backdrop, let’s take a look at the various aspects of the gold market to see if it could still be viewed as the best safe haven market.

As I mentioned the COMEX Gold Cash Index (GCY00) remains incredibly strong, posting a new high of $2,427 during April. The index has pulled back a bit, sitting just below $2,390 midday Friday (April 19). Monthly stochastics (a long-term momentum indicator) are near 90%, showing the market to be sharply overbought. But as the old saying goes, a market can stay overbought (or oversold) longer than most of us can stay solvent. Those buying cash gold ahead of the potential Chaos of another weekend could look at running a sell stop below the previous 4-month low. However, that is a LONG way down there, back to the December mark of $1,973.95. It’s impossible to measure the risk/reward ratio since we have no idea how high cash gold might go over the coming months, all we can see is the risk. 

The June futures contract (GCM24) is interesting in that it hit a new 4-day high overnight through Friday morning on the news explosions were heard in Iran. June quickly blew past the previous mark of $2,414.80 on its way to a high of $2,433.30, up $35.30 (1.5%) from Thursday’s close before pulling back a bit. Technically, June gold looks to have moved into a short-term downtrend, though downtrends don’t usually include new 4-day highs. It will be interesting to see how the rest of Friday’s session plays out, with support at the previous 4-day low of $2,370.70. If June takes out the latter, after already posting a new 4-day high, and closes lower for the day it would complete a bearish outside range confirming a new short-term downtrend. It’s here we have to remember Newsom’s Rule #6, though: Fundamentals win in the end. If central bands are buying gold, then it doesn’t matter what technical indicators and patterns are telling us. 

The SPDR Gold Trust ETF (GLD) has also shown us some interesting technical patterns of late. The weekly candlestick chart shows last week’s activity concluding with a shooting star, a pattern that is interpreted as signaling a top. That being said, GLD found renewed buying again early this week keeping its intermediate-term trend up for now. Similar to the cash index and June futures, GLD’s weekly stochastics are indicating an overbought situation though this hasn’t stopped buyers from coming into the market. This brings to mind another of my Market Rules, #1: Don’t get crossways with the trend. As of this writing we do not have a clear indication the trend has changed, so buyers can still be confident despite historically high prices. 

I still like gold as a safe haven market given all that is going on in the world, particularly ahead of a weekend. Theoretically, would I be buying today? It would be difficult, but if I had other investments needing protected, then yes. As Newton’s First Law of Motion applied to markets tells us: A trending market will stay in that trend until acted upon by an outside force, with that outside force usually investment money. For now I don’t see investors changing the direction of their activity. 

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