Gold Above $2,000: Head-Fake or the Big Break?
From a technical and psychological standpoint, $2,000 is a make-or-break level for the gold price right now. That’s how it seems to short-term traders, at least, but the case for owning gold has never been about short-term concerns.
From a technical perspective, it’s easy to see why the $2,000 level is such a big deal. It’s a major resistance point, and this is the fourth time that gold has bumped up against it (give or take a few dollars).
This raises a number of questions. Are the market makers just messing with gold traders, or is there price manipulation going on among powerful globalists? Maybe the answer is “none of the above” since human psychology plays such a powerful role in the financial markets.
It’s not uncommon for excitement to build around a round number like $2,000. There’s much more excitement in almost reaching $2,000 than in actually getting there. It’s not so much “buy the rumor, sell the news” as it is “buy the anticipation, sell the achievement.”
More accurately, it’s like this: “Okay, we got to $2,000. I don’t feel any different. Now what?” It’s like reaching age 30, 40, or any other round number: you feel the same as you did at 29 or 39 because life’s problems haven’t suddenly gone away.
The same problems are here in the markets. Tensions in the Middle East haven’t subsided. The war in Ukraine is still ongoing. It’s all gold-bullish, really, but sometimes it takes the market a while to recognize this.
Other problems haven’t gotten any better, either. The Federal Reserve still thinks that 2% inflation is a reasonable target even though Ford just negotiated massive pay raises for its autoworkers and Middle East issues are going to keep oil expensive for a long time.
The Fed is almost certainly going to skip an interest rate hike on Wednesday, but the futures market doesn’t expect an interest rate cut until June at the earliest. As long as bonds offer ~5% yields, it’s going to be difficult to convince traditional fund managers to choose gold over government bonds.
If anything held gold down, though, it’s the perception of a strong dollar. I say “perception” because the dollar’s purchasing power will always deteriorate over time. It’s only “strong” compared to other world currencies that are deteriorating even faster.
Gold is actually trading at an all-time high against some currencies. Against the U.S. dollar, it’s going up faster than it went down. This is why it’s much easier to just buy and hold gold instead of trying to time the market: you never know exactly when a powerful rally will occur.
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Ultimately, it’s not necessary or even helpful to get emotionally hung up on round numbers like $2,000. Just remember what gold’s purpose is: it’s a store of wealth that involves no counterparty risk.
With gold, you’re not depending on the government to fulfill its promises. Traditional fund managers call bonds “risk-free,” but this implies trust in the government and those who run it.
It’s not hard to find evidence that the U.S. government isn’t great at keeping its promises or behaving responsibly. The interest payments on the federal debt already exceed the entire principal debt from 1980.
So, don’t be demoralized if this turns out to be another head-fake in gold at $2,000. Review your reasons for owning gold in the first place. Sure, we’d all like to see some follow-through this time, but the number $2,000 isn’t more important than the security that gold gives you.
Amateur traders, unfortunately, don’t really believe in gold and oftentimes don’t have enough savings to buy it. They’re on the hunt for the next shiny object in the markets – NFTs, obscure crypto coins, 3D printing, or whatever the flavor of the day might be – and they get burned every time.
Then they get interested in gold for a hot minute because it hit a certain number and the mainstream press is talking about it. If you follow the crowds, you’ll get their results. Suffice it to say that those results will always be suboptimal.
In contrast, sensible investors who have held gold for decades are doing quite well today. They didn’t stress over day-to-day price fluctuations, and they’ve fortified their wealth with something tangible and ancient but with enduring value as the modern world presents one crisis after another.
Chief Editor, CrushTheStreet.com
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