Direxion Shares Exchange Traded Fund Trust (JNUG): Is Gold in a “Dull Market”?
On the gold market, an old axiom has proven to be quite wise through 2016: never short a dull market. While gold hasn’t been dull—the Fed and Brexit have lifted it from doldrums rather nicely—it’s not been the roller coaster ride that was 2011. Let’s take a look at how gold’s “dull” market might actually be a “bull” market.
An uninteresting movie is dull, but does that mean an uninteresting market is dull? Not exactly: in the trading lingo, a dull market refers to one that falls into a trading range of support and resistance, or one that occurs during a pause in a bull market. With the June gold rush leading into a tranquil gold summer, there’s plenty to suggest that we’re in the eye of a bull market storm, as gold as made no net gain in the past 90 days. Market analysts usually agree that a pause in the midst isn’t bad news. In fact, it’s not even a reason to sell off, since the dull market often works in favor of investors by gathering steam for a new buying wave.
Loose Trading Range
Gold’s range has been particularly loose within the past six months. Gold has trended in about an $80 window, without breaking through to $1,400 per ounce, but without lagging down below $1,300 per ounce. Buyers are waiting for gold to hit a sour note before they buy in, since a dip in a bull market is the surest sign of good value in all of the investment world; note the number of new buyers who snapped up gold when it fell to just $1,305 per ounce at the end of August, propelling the precious metal back up to the 90-day average within the span of a single week. Each time that gold falls, new buyers emerge to capitalize on the trend.
The reluctance of investors to short gold is fantastic news for those who buy physical gold or invest in the metal indirectly. Most analysts agree that gold has a strong future through the rest of the year and into 2017. December gold trades are currently well above their 100- and 200-day moving averages; in fact, the 100-day crossed over the 200-day average back in March for the first time in half a decade. The higher daily highs and lows suggest a range-based growth pattern of gold that will hold to the $80 range while climbing steadily upwards. Some prefer to buy in and sell fast: the 14-day relative strength index of gold has gone above the 50% line, suggesting that for some the gold game isn’t a long game. Yet the decision to hold onto gold for months or even years rather than weeks appears to be a strong strategy at the moment.