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What Will It Take to Propel Gold above $1,400?

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Jun. 20 2019, Published 11:05 a.m. ET

Fed’s dovish stance propels gold to a multiyear high

Gold’s recent surge is the result of investors’ concerns about a growth slowdown going forward due to ongoing US-China trade tensions as well as the overall weaker economic reports out of the US and China. China’s industrial and fixed asset investment data for the latest month came in below expectations. The US jobs report for May was worse than expected, with job additions growing by just 75,000 and missing economists’ expectation of 180,000. US consumer price data for May also disappointed markets. Investors’ concerns prompted a dovish response from the Fed, boosting gold.

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Gold miners have also been skyrocketing on gold’s strength. Barrick Gold (GOLD), Newmont Goldcorp (NEM), IAMGOLD (IAG), Kinross Gold (KGC), and Yamana Gold (AUY) were up 5.4%, 3.8%, 8.8%, 5.1%, and 8.8%, respectively, at 10:00 AM ET on June 20. Meanwhile, the Junior Gold Miners Bull 3X ETF (JNUG) and the Direxion Daily Gold Miners Index ETF (NUGT)—leveraged gold ETFs—were up 11.8% and 9.0%, respectively.

Hedge fund managers increase bids for gold

Gold prices are also gaining bids from hedge fund managers who are recommending gold. In Why Jeffrey Gundlach Likes Gold, we wrote that Gundlach is long on gold due to his expectation that the US dollar (UUP) will finish lower this year. Paul Tudor Jones’s strategy to play the rate cuts involves long rates and gold. Read Paul Tudor Jones’s Strategy for Fed Rate Cuts for more on his take. In Druckenmiller Suggests These Two Trades to Hedge against Meltdown, we wrote that Stanley Druckenmiller had dumped his other investments and piled into Treasuries (TLT) after President Donald Trump’s tweet on May 5. He also likes gold (GLD) in this environment.

Gold prices above $1,400

Gold has now broken above its multiyear support level. The near-term level for investors to watch out for will be the 2014 high of $1,392 per ounce. After that level, gold could head for the psychologically important level of $1,400 per ounce. The next big catalyst for gold prices will be the upcoming G20 summit, where President Trump and President Xi Jinping are expected to meet to discuss trade relations. A lack of any positive way forward after the meeting could mean a decidedly dovish stance from the Fed, which, in turn, would be very positive for gold.

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