Gold could be eyeing a major breakout in the first quarter as overvalued equities come crashing back down to earth.
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.
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.
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%.
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.
This article was edited by Josiah Wilmoth.
Last modified: February 3, 2020 9:30 PM UTC