Gold Has Shined Bright Amid Global Volatility

The price of bitcoin swung wildly last week, along with gold, flirting with its all-time high on Wednesday before plunging more than $3,000. The digital currency looked ready for a correction after hovering in overbought territory for about a month, according to the 14-day relative strength index (RSI). Then, this morning, the crypto hit $19,783 and moved above its record high.

Gold, on the other hand, is starting to look oversold, especially after Friday’s selloff on hopes of a vaccine and broad economic recovery.

The yellow metal has also been under pressure from rising bond yields. The yield on the 10-year Treasury has been on the upswing, and as I’ve explained a number of times before, this can have a huge impact on the direction of gold prices. Gold hit its all-time high of nearly $2,070 an ounce on August 6, when the 10-year yield traded as low as 0.5%. Remember, this is the nominal yield. Adjusted for inflation, it’s below zero.

I believe gold is a buy at these prices. The following 20-day and 60-day oscillator charts bear this out.

Looking at the 20-day, gold was trading down close to 2 standard deviations from its five-year mean, meaning its well within the “buy” range. The data says we may see a rally in prices in the short term.

The 60-day oscillator chart also shows that gold is oversold, though not as pronounced. The metal was down 1.5 standard deviations from its five-year mean. This is about as oversold as gold has been since September 2018.

Gold Miners Reporting Record Free Cash Flow

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Gold miners have put cost controls in place as the price of the underlying metal rose to new all-time highs. This has resulted in record free cash flow, according to Metals Focus.

In a report dated November 25, the London-based group said that cash flow after capital expenditures for the world’s leading gold miners reached a record high of $4.8 billion in the third quarter of this year. That’s a significant increase of $2.7 billion from the previous quarter, an even bigger increase of $3.3 billion from the same quarter a year ago.

According to Metals Focus, “costs have been contained, with companies remaining focused on maintaining operating and capital cost discipline to maximize value from their [existing] mines.”

This is very good news for investors as this may mean higher shareholder payouts in the future.

Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility. The relative strength index (RSI) is a momentum indicator used in technical analysis that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.



Via SeekingAlpha.com