Gold Below $1,250 is a ‘Strategic Buying Opportunity’

Today’s employment report was slightly weaker-than-expected, initially causing the dollar to drop and gold to rally.  Only 156k jobs were added versus estimates of 175k. The unemployment rate ticked up to 5.0% during September.

While the participation rate increased, the true story is that all of the job creation was part-time jobs in the service sector. There was a net decrease in full-time jobs during September and the number of people with multiple jobs skyrocketed higher. 

jobs gold sept

Media headlines put a positive spin on the report, calling job creation ‘steady’ and ‘stable’. While the number of jobs created was only about 11% less than expected, it does slightly reduce the odds of a rate hike is 2016. 

Gold and silver both spiked sharply on the news, gave back a good amount of early gains and then bounced once again. The trading is very volatile and market participants seem unsure of what to make of the employment report. If only a FED official would make another conflicting statement or empty promise, we would surely know what to do.

Gold is currently trading at $1,252, down $3 for the day. Silver has rallied back into the green, up 18 cents on the day to $17.45. Mining stocks are up roughly 1%.

Goldman Sachs Says Gold Below $1,250 is a Strategic Buying Opportunity

I don’t agree with Goldman Sachs too often, but I believe they have this call correct. Goldman believes that the drivers of strong physical ETF and bar demand for gold during 2016 are likely to remain intact, including continued strong physical demand for gold as a strategic hedge, limiting any downside, seeing the recent sharp gold selloff as a strategic buying opportunity.

They site substantial downside risks to global growth and concerns about the ability of monetary policy to respond to any potential shocks to growth.

Gold has dropped sharply over the past month, from c.$1,350/oz to c.$1,250/oz, with the majority of the move lower occurring on Tuesday of this week, following hawkish comments by Fed officials (Lacker in particular) and a subsequent break of the psychologically and technically important $1,300/oz level (N.B. the next important technical level is $1,248/oz – a 1.618 extension target from the Aug. 2 high).

GS continued by calling out the importance of the substantial move lower in gold to close the divergence between real rates and gold that opened up during July and August. Also notable is that the move lower does not appear to be driven by physical gold ETF liquidation  – physical gold ETFs have actually built over the past week, and as such we expect that Friday’s CFTC report (which will include data through Tuesday October 4, the day the major sell-off occurred) will show a substantial decrease in net speculative short positions.

gold etf holdings

Goldman Sachs commented about gold:

Indeed, we would view a gold sell-off substantially below $1,250/oz as a strategic buying opportunity, given substantial downside risks to global growth remain, and given that the market is likely to remain concerned about the ability of monetary policy to respond to any potential shocks to growth.

The reaction in gold prices to the possibility of a U.S. interest-rate hike at the end of the year has been larger than we anticipated.

Other bullish factors mentioned by GS include Chinese investment demand for gold may pick up following the recent sell-off and the latest move lower bringing gold down to a level in line with the marginal cost of production.

The technical chart for gold shows that the metal is oversold and likely to bounce off strong support at $1,250. The RSI reading is just 24.5, the lowest it has been since December of 2015, the multi-year low price for gold. This support level is $1,250 is very significant, as it is not only the 200-day moving average, but also the 38.2% Fibonacci retracement. Furthermore, this price point has acted as both support and resistance in the past, increasing its significance.

gold technical chart

What is Next for Gold and How Can You Maximize Profits?

At Gold Stock Bull, we have a magic crystal ball that tells us which direction the price of gold and silver is heading next. Okay not quite, but we are studious and dedicated researchers of the key fundamental and technical drivers of the gold price. We use this research to time our entry and exit points in the markets. We also perform in-depth studies of dozens of mining companies each month and have built a portfolio of roughly 15 stocks that has outperformed and generated significant returns for our subscribers.

The October edition of our newsletter, The Contrarian Report, is currently in the works and will be sent to subscribers on Sunday. In this edition, we will focus on the key cues to look for indicating that the correction is over and it is time to back up the truck. We will also narrowed our buy list to 5 new stocks that we plan to add during this dip.

You can get started today for just $45 by clicking this link.

By | 2017-03-23T14:06:47+00:00 October 7th, 2016|Gold & Silver Commentary, Gold Technicals|

About the Author:

Jason Hamlin is the founder of Gold Stock Bull and has been investing in precious metals for over 20 years. Jason spent nearly a decade in analytics for the world’s largest market research firm, before finding success investing full time. He launched Gold Stock Bull in 2005 and turned his focus from helping fortune 500 companies to helping individual investors. Jason is a student of Austrian economics and a proponent of cryptocurrencies such at bitcoin.