Is Gold Heading For April Contract High?

Textbook technicals take gold to a new high for the year in the April contract to $1,275.90. I must acknowledge my friends who just trade off the gold charts. For the second time this year, they called the breakout at the $1,260 area. That’s the second dinner I owe them after indicating that I only give that trading theory a ten percent reliably. So far they have been right twice this year, so an apology is in order to my technician buddies.

U. S. job creation in February reported at 242,000 which keeps the unemployment rate at 4.9%. Right after the employment number we dropped from $1,260.50 in the April contract to the low so far today at $1250.10. I see that sell off as program trading activity, because within the next eight minutes after the news was absorbed
we witnessed strong buying coming in. These moves indicate to me that program trading is alive and well and in the end fundamentally nothing has changed, as people viewed the sell off as a buying opportunity.

In an attempt to keep the stories about negative interest rates in the forefront, I must refer to someone I admire, Janus Capital’s Bill Gross. In article in today’s Wall Street Journal, Bill Gross says, “negative rates threaten bank profits, as well as any business models, such as those of insurance companies and pension funds that depend upon 7% to 8% annual returns on assets.” He went on to say, “the damage extends to all savers; households worldwide that saved / invested money for college, retirement or for medical bills. They have been damaged and only now are becoming aware of it. Negative rates are an enigma to almost all global investors, undermining the basic architecture of financial markets. But central bankers seem ever intent on going lower, ignorant in my view of the harm being done to a classical economic model that has driven prosperity – until it reached a negative interest rate dead end and could drive no more.”

I wanted to share his comments with each one of you so you can hear from other sources on how damaging negative interest rates could be. These comments only add fuel to the momentum that has been created by ETF purchases from the beginning of the year.

ETF infusions continue to increase and now stand at 56.5 million ounces.

In my opinion the ONLY thing that can derail this gold train going forward is the Fed raising interest rates in March. And for most of us, except for some Wall Street gold traders who are holding on to Fed governor comments, we believe that a rate hike in March is off the table.

So who’s buying a train ticket while the fares are still reasonable?