12/10/2020

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

  • Golds 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%.
Golds Next Power Move
Bullion can still add $140 to its current price as high-flying equity markets come crashing back down to earth. Thats 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 weve 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 isnt out of the question once equities begin their long unwind. The key for gold is to hold above $1,500 during this consolidation that were in.
While the analyst isnt 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 weve 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.