September 11, 2019
On this 18th anniversary of 9/11, our thoughts go out to everyone impacted on that fateful day.
“The higher the base, the higher in space,” is an old technical analysis saying.
Gold is up 18% year-to-date (as of 9/10/2019), poised for its best year since 2010, when it gained 30%. We see many reasons why this rally may have legs.
Last year’s action was rare: The S&P 500 Index, 10-year U.S. Treasuries, and gold were all lower. Going back to 1971, when gold was officially removed from the gold standard, last year was the first year that all three assets were lower in a calendar year. Now in 2019, all three assets are up significantly, quite a difference from last year!
Gold and stocks have trended the same way: Since 1980, stocks and gold both have risen in 19 of those 39 years, and both have fallen in only four years. Somewhat surprisingly, both were up more than 10% in eight of those years. Gold might be viewed as “defensive,” but history shows there can be times when both gold and stocks have had nice gains together.
“Gold is breaking out to new highs after doing nothing for years,” explained LPL Financial Senior Market Strategist Ryan Detrick. “Concerns over the global slowdown, $17 trillion in negative yielding debt, inverted yield curves, and central banks stepping up their gold purchases have all pushed the yellow metal out of a picture-perfect base.”
Technicals support a rally: As shown in the LPL Chart of the Day, gold completed a nice-looking six-year saucer bottom and broke out above previous resistance. As the quote at the start of the blog noted, when things base for years, the potential move can be quite explosive.
A well-deserved pullback may present an opportunity for suitable investors to add exposure in appropriate strategies.
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