USD Gold this week broke above the key level of US$1400. Just under a week ago it broke above $1375. What happens now?
Prior to this breakout, gold had attempted to break through this overhead resistance at $1375 six times in recent years.
But now that the breakout has occurred, gold in USD is at a 6 year high.
It is the USD gold price that attracts all the headlines. And so this $1400 level will push gold into the financial news a little more.
Even though gold is already at or very close to all time highs in other major currencies.
In Australian Dollars, gold is at an all time high…
In Canadian Dollars gold hovers near the all time high…
In British Pounds, Gold is at a 7 year high and not far below the all time high…
Gold is at 6 year highs in Euros…
In Japanese Yen, gold is also not far below all time highs…
But to repeat: It is the USD gold price that attracts attention.
What Happens Now That Gold Has Broken Out?
Now gold is above US$1400 we should see much more interest in gold. This is a key psychological level.
Therefore, we should see attention from the momentum buyers. Such as institutional investors.
These are the buyers that often drive the gold price.
Worries about the US and global economy are starting to rise. Last week we had the US central bank indicating an interest rate cut was now likely. Even though things aren’t looking too bad yet in the US economy.
However the smart money is moving towards gold in advance of these problems becoming obvious.
So gold will now head higher.
First Though We Should Soon See a Correction
USD gold is in serious overbought territory. The RSI overbought oversold indicator is at 83.72. Anything above 70 is considered overbought.
So we may see a retest of the break out area round $1375.
However these momentum buyers could well push gold a bit higher yet before any correction sets in.
A correction will be healthy and allow gold to move higher from here.
Well the next major resistance level looks like being $1500. This was the support level that was touched 3 times following the plunge from the all time high back in 2011.
So it might take a few attempts to break above this level.
Contrarian Indicator – Low Level of Buying
However there is still very little interest in gold.
The Perth Mint’s gold product sales in May fell 46% from the previous month. Their lowest level since April 2017.
The U.S. Mint sold 4,000 ounces of American Eagle gold coins in May. Down 60 percent from April.
Gold-backed ETFs also report soft to negative demand overall.
Before this run higher started, the top 3 European exchange-traded trust funds backed by gold had dropped 0.7% in size as investors sold overall.
While the top 3 US-listed ETFs had expanded by 1.6%. But they still remained smaller than they were at any time between December and March.
We know from experience that a bull market likes to run with as few people on board as possible. So we could see a very strong push higher in gold now.
What About NZ Dollar Gold?
However at key times like this we do look at the USD gold price. As the USD gold price is now likely to lead the gold price in all other countries even higher.
So Where to From Here for NZD gold?
We said back in early June that it might be wise to buy the breakout in NZD gold:
Buying the Gold Breakout?
We usually talk about buying gold and silver on pullbacks as the best move.
However the chart for NZD gold we showed earlier points to likely higher prices ahead.
When a clear breakout such as this occurs, it is one of the times when may pay to go with the momentum. As any pullback may now only be back to what was the previous resistance level around $1970.Source: NZD Gold Above $2000 – Should You Buy the Breakout?
That certainly has been the case.
NZD gold continues to push higher. It is closing in on $2200. A level we also pointed out in early June was likely to offer stronger resistance. This is where the blue uptrend line and the overhead resistance line converge.
NZD gold is now looking very parabolic and so a pullback is overdue. We’d guess it could occur from the $2200 level.
The pullback could be back to $2050. Or even a retest of the breakout line at $1975.
But we have our doubts whether we will see prices below $1975 again – maybe ever again. This former multi year resistance line is now likely to become support.
(Does this talk of support and resistance have you confused? Then check out: Gold and Silver Technical Analysis: The Ultimate Beginners Guide Updated)
Why Silver Remains Our Best Buy
What about silver in NZD?
Silver has certainly remained gold’s poor cousin.
In recent times silver has been looked at as an industrial metal. But we think that could be about to change.
When it does silver will go into serious catch up mode with gold.
But for now while silver is rising, it continues to lag gold. Today the gold silver ratio made a new high at 92.
However like we said last week we think things may be looking up for silver.
Silver – About to Play Catch Up?
In NZ Dollar terms, this week, silver looks to have broken out of the multi-year downtrend it has been in. While USD silver is right on the verge of this occurring.
There’s about a 30% upside in NZD silver from here. That’s just to get back to the 2016 high.
But let’s zoom out on a longer term chart…
It’s an almost 200% upside to get back to the all time high from 2011.
- even though gold has broken out…
- even though gold is making the news…
- even though most people will buy gold…
We think the best move you can make today is to BUY SILVER.