Gold’s Next Power Move Could Happen Sooner Than You Think

Gold could be eyeing a major breakout in the first quarter as overvalued equities come crashing back down to earth.

  • Gold’s price peaked at $1,567.50/oz. on Thursday, putting it on track for the highest settlement in two weeks.
  • A technical strategist believes bullion could make a fast move towards $1,700 in the near future.
  • The same analyst predicts a large pullback for the S&P 500 – a move that would benefit gold and other haven assets.

The price of gold moved back above $1,560 on Thursday, setting the stage for a bigger move north as overvalued equities brace for correction following months of relentless gains.

Gold Pushes Higher

Bullion rallied throughout the session on Thursday after flat-lining for much of the week. February gold futures jumped nearly $10 to $1,567.50 a troy ounce on the Comex division of the New York Mercantile Exchange. The yellow metal was last up $5.50, or 0.4%, to $1,562.20 an ounce.

February gold futures rose on Thursday. The yellow metal is up more than $120 from its mid-November bottom. | Chart: barchart.com

Silver futures rose by as much as 8 cents before correcting lower. The February contract was last spotted at $17.81 an ounce, having declined 2 cents, or 0.1%.

Gold’s Next Power Move

Bullion can still add $140 to its current price as high-flying equity markets come crashing back down to earth. That’s according to Patrick Ceresa, founder of Big Picture Trading.

In an interview with Kitco News, Ceresa said:

I look at the way the liquidity flows in the market and we’ve entered a frothy parabolic phase in the markets with stocks such as Apple and Tesla driving this huge impulse higher. The S&P 500 tacked on just double-digit returns, 500 S&P points in just four months. These types of advances almost always mean-revert

In terms of actual price targets, Ceresa says a move towards $1,700 isn’t out of the question once equities begin their long unwind. The key for gold is to “hold above $1,500 during this consolidation that we’re in.”

While the analyst isn’t concerned about valuation risks, several metrics place the S&P 500 in severe overvaluation territory. Price-to-sales, ratio of market value to total profits and technical analysis all suggest the major index is primed for reversal.

In terms of fundamentals, the S&P 500 is on track for a fourth-quarter earnings decline of 2.1%, according to FactSet. If the number holds, it would mark the fourth consecutive quarter of year-over-year declines.

U.S. stocks have yet to show any signs of major correction, but the record-setting gains we’ve come accustomed to are slowing. On Thursday, the S&P 500 Index finished up 0.1%.

Disclaimer: This article should not be considered investment or trading advice from CCN.com.

Last modified: September 23, 2020 1:31 PM

Sam Bourgi

Financial Editor of CCN.com, Sam Bourgi has spent the past decade focused on economics, markets, and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE, Yahoo Finance, and Forbes. Sam is based in Ontario, Canada and can be contacted at sam.bourgi@ccn.com or at LinkedIn.