Gold Prices Spike

Written By Luke Burgess

Posted April 29, 2016

Gold prices are up over 4% for this week alone.

Take a look…

gold price spike 2

But my most recent gold trade didn’t work out exactly as I thought it would…

On Monday, I wrote to you anticipating a drop in gold prices early in the week and a strong rebound on Thursday.

And it kind of happened. The prices of gold and gold stocks did, in fact, rally yesterday. However, gold traded horizontally Monday through Wednesday and didn’t dip as much as I thought.

Here’s exactly what I wrote to you on Monday:

Buy gold stocks today and tomorrow ahead of the Federal Reserve’s FOMC meeting.

Sell on Thursday.

No one is expecting the Fed to move its benchmark rate. So Main Street investors and institutions are likely doing two things right now in anticipation of a dovish announcement on Wednesday:

1. Going long on the U.S. dollar.
2. Going short on gold.

And while they’re doing that, we should be buying gold.

That’s because after the Fed makes the final announcement on Wednesday, the dollar longs will “sell the news,” and the short pressure will come off of gold.

And that’ll leave gold prices nowhere to go but up.

This exact scenario happened during the week of the March 15–16th FOMC meeting. And I anticipated it happening again this week.

Take a look. Here’s what happened to gold prices during the week of the March 15–16th FOMC meeting (I showed you this chart on Monday)…

And here’s what’s happened in gold this week…

gold price spike 3

There very clearly was short pressure coming off of gold yesterday, leading to higher prices.

So when’s the next FOMC meeting to make this play again, right?

Well, the Fed won’t meet again until June. And a million things can happen between now and then that could completely change the market. So we shouldn’t get overly concerned with planning so far out. However, we should definitely keep this trade on the shelf for the future.

What’s next?

Right now, I’m looking for the gold market to cool back down before attempting another trade. Of course, I will retain my core gold positions. But I’m a bit timid to enter gold over $1,280 an ounce right now. And there’s no way I’m going short on such momentum. So as much as I hate to do it, I think it’s best to sit on our laurels for the next several days.

In the meantime, I want to keep my eye on base metals — specifically copper.

gold price spike 1

Next week’s report on construction spending is forecast to show a 0.7% increase — compared to -0.5% in February. Reports on motor vehicle sales and productivity are also expected to show increases.

One copper producer that I keep on my radar is Nevsun Resources (NYSE: NSU). Nevsun is the 60% owner of the low-cost, high-grade Bisha copper/zinc mine in Eritrea. Bisha has over nine years of reserve life, generating revenue from both copper and zinc concentrates and containing gold and silver byproducts.

Shares of NSU have risen quite a bit in just the past few days. But with next week’s reports, I think we could see a move over $4 a share.

I want to also point your attention to Southern Copper (NYSE: SCCO) right now. SCCO opened a bit higher this morning but is being held back on news that net profit dropped 34.5% to $185.1 million, or $0.24 per share, during Q1.

Currently under $30 a share, SCCO might be a good play on a jump in copper next week.

Good Investing,

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Luke Burgess
Energy and Capital

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