Friday, June 17, 2016

Why Gold Is Going to Break Out and Go to $1,519

On Thursday, gold rallied to a two-year high of $1,316 per ounce before pulling back. It sure looked like a top. 
(Updated chart)
Let me make a case for why gold is not making a top. In fact, it's coiling up for a breakout.

If gold can close and confirm above $1,300, that will show that traders are betting the Fed will stay stationary until December. And that’s the start of a new rally.

My target in that rally -- just generated yesterday -- is $1,519.

Why is the Fed not raising rates important? Gold doesn’t pay interest. When rates are near zero, the “opportunity cost” of owning gold disappears. 

And just this morning, St. Louis Fed President Jim Bullard, who has been very hawkish, just slashed his outlook for rate hikes. Bullard now says low growth and a very low fed funds rate of just 63 basis points will likely remain in place through 2018.

That is a huge shift.

Meanwhile, there is another good reason to own gold. Historically, the yellow metal is a risk-haven repository. In other words, investors scramble to gold for security in uncertain markets. 

Then there is the upcoming vote the United Kingdom will take on whether to leave the European Union. I think the vote is a tempest in a British teapot. Nonetheless, there is a risk that global markets could be thrown into chaos. And that risk is being priced in right now.

Three stories for you on this topic ...

I've made it clear that I am more bullish on silver than gold. And I think miners are the way to play this rally, not the metals.

Good luck and good trades.

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