The Daily Market Report: Gold Edges to 5-Week Highs


USAGOLD/Peter A. Grant/04-04-17

Gold extended to the upside in early trading, eking out a new 5-week high of 1261.25. This leaves the high for the year set in February at 1263.87 intact for now. The 200-day moving average is at 1257.70 today. A definitive breach and close above this whole area would be a rather bullish technical event.

Silver has already penetrated, and has been trading above its 200-day MA since last week. The February high at 18.48 must be cleared to trigger the next leg higher. With silver leading the charge so far this year, such a move has the potential to drag gold through its key resistance area.

As noted in a blog post earlier this morning, Egon von Greyerz of Matterhorn Asset Management went so far as to say, “$1,250 gold and $18 silver are absolute bargains and unlikely to ever be seen again.” I agree that the metals are a bargain, but I think we’d need to see gold above $1300 and silver above $19 before we really can consider $1250 and $18 in the rear-view-mirror.

The linked Barron’s article led me to another article from last week entitled, Gold: 46 Trillion Reasons to Buy, where Trey Reik of Sprott Asset Management notes that household net worth is really overextended — by about 40% — relative to underlying GDP growth.

We maintain high confidence that the eroding quality of U.S. economic growth guarantees that U.S. financial asset prices will eventually reflect their true eroding intrinsic value, to gold’s significant benefit. Along the way, such as during the S&P 500 Index declines of 2000-2002 (50%) and 2007-2009 (57%), gold has provided unparalleled portfolio protection as over-exuberant faith in U.S. financial assets has been punished. — Trey Reik, Senior Portfolio Manager at Sprott Asset Management

The implication is that this situation has to be corrected; so he is anticipating that over-valued stocks, bonds and real estate markets will be “punished”. Gold would likely surge in such an environment on safe-haven buying. “[G]old’s role as productive portfolio diversifier is about to reassume center stage,” says Reik.

The second article points out that gold has historically proven to be excellent portfolio insurance. The first article tells us that insurance is cheap right now. Trying to buy flood insurance when the water is already rising is typically not a good idea.

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