Gold's 'Wall Of Worry' Is Increasing

Summary

• Gold again showed resilience in the face of financial market weakness.

• The metal's "wall of worry" continues to grow, which is bullish.

• Gold ETF is close to confirming an immediate-term breakout signal.

A major sell-off in the stock market caught precious metals traders by surprise on Thursday. Coming on the heels of gold’s best 1-day performance in over a month, gold and silver ETF prices were lower on Thursday but not by much. April gold futures, however, were actually higher for the day. Gold’s continuing theme in the immediate term is its increasing resilience in the face of mounting global market worries. To that end, gold’s near-term picture is shaping to be quite positive as we’ll discuss in today’s commentary.

On a day which saw steep losses in the major U.S. stock market averages, spot gold was only 0.3 percent lower to close at $1,328. April gold by contrast settled up $5.90, or 0.5 percent, at $1,327. The actively traded gold ETFs meanwhile were lower by around 0.40 percent. All in all, the gold market showed a decisive degree of relative strength in the face of broad financial market selling pressure.

The prospect of a trade war between the U.S. and other economies, most notably China, has likely put a floor under gold prices for now. Trump’s latest move to impose tariffs on up to $60 billion of Chinese imports on Thursday was just the news gold investors were looking for as far as serving as a stimulus for safe-haven demand. Between that and continued internal erosion in the U.S. equity market, gold has a ready-made “wall of worry” to justify a near-term breakout attempt from the malaise which has confined gold prices to a two-month trading range.

Turning our attention to my favorite gold surrogate, let’s take a look at the graph of the iShares Gold Trust (IAU). The IAU price rose conspicuously above its 15-day moving average on Wednesday, which the first such time this has occurred in several weeks. The rules of my technical trading discipline state that a two-day higher close above the 15-day moving average constitutes an immediate-term buy signal. As we saw in the previous report, IAU is very close to confirming an immediate-term bottom and subsequent breakout signal. All that is now required to confirm a technical breakout for IAU is for the price to close above $12.80, which was Wednesday’s closing price. By closing above $12.80, IAU will have succeeded in closing two days higher above its 15-day MA, thus confirming an immediate-term (1-4 week) buy.

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