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Three Points on Gold's Recent Action

Gold should be facing headwinds with predictable rate hikes by the Fed on the horizon.

Because gold yields nothing, as the traditional thinking goes, there is less incentive to own it as rates rise.

But we are in anything but traditional times.

Over 10% of the way through this year, with the Fed having hiked and planning to hike more, gold is up 1.83% for the year while the S&P 500 is in negative territory.

Gold and S%26P YTD(Click to Enlarge)

A few things to note…

First, gold has held mostly steady while broader markets are down a full 10% from their peak — a textbook correction.

I say mostly because gold did test $1,300 on February 8th before bullishly reversing and closing higher. Gold pulled back a bit, but not nearly as much as broader equity markets. And this is bullish for the metal.

So bullish that Goldman Sachs came out and upgraded gold for the first time in years.

In a report last week, the investment bank said it sees gold at $1,375 in the next six months and at $1,450 in the next year. That’s a sharp upward revision from its previous forecast of $1,225 gold in the next year.

Gold bulls will delight in that $1,450 number because, if that turns out to be the case, we know much higher prices are in store after that.

Second, gold fund inflows were moving up even before the market correction began — a sign that gold is going higher for additional reasons outside of its safe-haven appeal.

Gold-backed ETFs added 27.6 tonnes in January, growing assets by 5%. And importantly, the inflows were dominated by North America (73%), reversing the trend of primary inflows from Europe.

This begs the question: Is U.S. money, perhaps even some crypto money, ready to move into gold in a big way?

Third, if we’re gearing up for a gold bull market what’s up with gold stocks?

The short answer is not much at all. And that’s good news for investors.

So far this year, gold stocks and junior gold stocks are down 5.5% and 6.7%, respectively, as evidenced by the popular VanEck Gold Miners (NYSE: GDX) and Junior Gold Miners (NYSE: GDXJ) ETFs.

Gold Stocks YTD(Click to Enlarge)

Going back further, it’s even worse. They're down 12% and 24% over the past year and 45% and 54% over the past five.

But gold prices are up significantly over those periods.

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Name Last Change
DOW 24100.50 2.06%
S&P 500 2599.95 1.95%
NASDAQ 6910.67 2.31%
TSX 14595.07 1.06%
TSX-V 555.38 0.00%

Resource Commodities

Name Last Change
Gold 1238.38 0.29%
Silver 14.57 1.17%
Copper 2.76 0.000
Platinum 787.00 0.000
Oil 51.20 2.70%
Natural Gas 3.83 7.76%
Uranium 28.53 0.35%
Zinc 1.22 0.00%


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