In his latest letter to investors hedge fund manager David Einhorn penned two paragraphs explaining why he continues to own gold:
“Lastly, we continue to own gold. Our sense is that Mr. Trump doesn’t hold any core policy beliefs and is apt to change his mind as he sees fit. This will lead to more political and economic uncertainty and less stability. There has been a knee-jerk decline in gold since the election, as investors presume that higher short-term rates are good for the dollar and bad for gold.
Ultimately, we believe the case for gold is broader: greater economic, geopolitical and policy uncertainties, much wider budget deficits, and the possibility of an inflation problem all support gold (to say nothing of what might be required to redecorate the White House to Mr. Trump’s tastes).”
Einhorn’s fundamental case for gold makes a lot of sense and I might add the case for gold reaches far beyond the borders of the United States; Europe and Japan’s debt & demographic challenges alone make a compelling case for gold.
Turning to the chart gold looks bullish after a nearly $100/oz rally from the mid-December doldrums:
Above ~$1220 gold could make a quick trip to test a much bigger level of confluence near $1250. Meanwhile, Money Flow (MFI) and Relative Strength (RSI) are both poised in bullish territory and as long price stays above $1195 a bit of further consolidation in the low $1200s will likely serve to build additional energy for any eventual upside breakout.
An additional bit of bullish evidence are the number of mining share charts that have bullish setups (cup & handles, rounding bottom patterns, etc.). As I mentioned a week ago a rally above $1250 in gold could send mining shares soaring, we might have an opportunity to see this scenario play out in Q1 2017.
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