Gold Prices: Why Isn’t Gold Going Up? Part II

(This is Part II in our series Why Isn’t Gold Rising.  You can read Part I here.)  

GLD, our unleveraged ETF trading proxy for gold prices, dipped its toe below 123.50 back on Sept. 20th, and hasn’t been able to climb back out since then.  Here’s the 3-month chart of GLD showing the recent action – or lack thereof.

(chart here, credit Fidelity)

All through this sideways-action period, gold bulls have been asking the question: Why isn’t gold rising?  They cite financial problems in Europe, increasing deficits in the US, and the ending of QE/start of QT programs as “proof” that gold prices should be heading up.

In case you’ve been hiding under a rock, QE stands for Quantitative Easing, or money printing, and QT stands for Quantitative Tightening, or giving us our money back.  These were and are programs run by the US Federal Reserve and the European Central Bank to support their respective economies following the 2008-2009 market declines.

To be fair, it’s an honest question.  After all, many fundamental market analysts have missed most of the “melt-up” market that’s been going on since the S&P 500 bottomed out at 666 on March 6, 2009.  That same index now stands at 2640, for a 296% gain in the past 8 years.  And to rub it in, the S&P 500 hit a new all-time high yesterday at 2665.19.    

It’s been a long time since we’ve seen even a 10% correction – over a year, in fact.  You have to go back to Feb. 11 2016, when the S&P hit 1810, to find a 10% correction. That one was from the high of 2116 on Nov. 3 2015, for a correction of 14%.

Since then it’s been a steady ride, as far as the stock market usually goes.

Investor psychology says constant runs of new highs promotes optimism, and attracts money, making new highs.

And there is our second answer to why gold isn’t going up. Investor attention is simply not on gold, or the things gold typically represents these days.  Investors apparently aren’t worried about a crash, or even a correction.  There are very few sellers in the market compared to buyers.  Yes, we’re seeing some bouts of selling here and there, but to these eyes they look more like profit taking than sector rotation or exiting the market.  Each bout of selling is matched the next day by opportunistic buying.  This gives the talking heads on TV lots to squawk about, but for the most part, interest remains in chasing returns on stocks.

 Related: Here’s Why Gold is Currently Stuck in a Rut

So that means safe haven assets are being ignored, or pilfered for funds to go chase equity profits.

That’s our second reason why gold isn’t going up – there simply aren’t enough buyers in the gold sector.  Right now.

One consequence of this is that many good gold miners are sitting at local lows, while at the same time posting good earnings reports.  This means the gold and precious metals sectors are among the few sporting low P/Es right now.  At some point some investor, out looking for a cheap buy, will notice this and buy some. Then she’ll tell her friends.  And so on, and so on, until the gold sector may finally find a bottom and start perking up again.

But probably not today.

There’s one more reason why gold prices aren’t rising, which we’ll cover in Part III another day.

Signed, The Gold Enthusiast

DISCLAIMER:  The author is long NUGT and JNUG, has open call options on NUGT, and may add to or sell these positions in the next 48 hours.  These are tiny, wouldn’t-move-any-market size positions.

 Related: Russia is Transforming the Gold Market. Here’s What You Should Know

About the author

Mike Hammer

Mike Hammer has had a wide-ranging career, with trading and investing as a continuing theme. Mike graduated from UC Berkeley with a business degree, then worked with Macy's in their operations arm. He left Macy's and spent a summer trading his own account, which taught him a lot about trading in general and markets in particular. Trading through the Black Monday and the Crash of 1987 showed him how most people are unprepared for upheavals in their trading. He then joined Waddell & Reed as a financial advisor, helping regular people understand their finances and meet their life goals.

Then came the usual story - Mike met and married the lady of his dreams. They moved to upstate New York, where Mike worked first for a small manufacturing consulting company, then Cornell University. While loving the work and the higher-education atmosphere, Mike missed the world of finance. Eventually, he signed up for stock trading coaching with the Adam Mesh Trading Group, to learn from people who understood modern markets. Within a year, Adam asked Mike to become a stock trading coach.

Since then, Mike has trained over 200 individuals, spoke at several national conventions, and is a frequent contributor to conference calls across the Adam Mesh community. Mike writes The Gold Enthusiast daily newsletter, runs the Golden Hammer trading service, and participates in the Mesh Private Portfolio. He also keeps a position in international education which keep him in touch with "the student mindset". Mike closely follows the gold, energy, and financial sectors. His motto is "Plan your trade, then trade your plan!"

Leave a Comment