Gold Breaks 2-Year Uptrend as Investors Sell Metals for Crypto, Says Morgan

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Gold and silver have been having a rough go of things this year. Well-known precious metals analyst Dave Morgan recently spoke with Financial Sense Newshour on the technical outlook, impacts from the cryptocurrency space, and more.

Technical Outlook Worsens

We’re at a level now that's very concerning from a technical standpoint, Morgan stated. If we examine the bottom of the recent bear trend within the still-intact bull market in gold, we saw a bottom in late December 2016.

That uptrend line is at about $1,240 right now, Morgan noted. We tested $1,240 last week and it bounced up to the $1,260 level. Now we're below that level, which isn't a good sign just from a technical standpoint.

gold break
Source: Stockcharts.com, Financial Sense® Wealth Management. Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly

From a fundamental perspective, Morgan noted, gold ought to appear in more portfolios. He pointed to several recent analyses that suggest the correct exposure to gold is between 20 and 15 percent, depending on the timeframe.

“This is not the mantra of the Wall Street crowd,” Morgan said. “They want equities to be bought and sold so that they get commissions by moving in and out. In contrast, most gold buyers buy the correct percentage and hold onto it and they're not going to get another commission.”

Crypto Impacts on Gold

Though it’s only anecdotal, Morgan sees a connection between cryptocurrency investment and the gold market. He’s heard from some dealers that customers are liquidating their silver, for example, and moving into Bitcoin.

How much of an influence this is having on the metals market is really difficult to quantify, he noted. But it is likely having an impact.

Millennials, too, aren’t heavily invested, but some have dipped their feet in with cryptocurrencies. It’s hard to say how much of that money would ever find its way into gold, however.

ETF Market Impacts

It’s well known that money managers cannot by law move into a commodity. That's the whole impetus for the GLD and SLV ETFs.

This has had a very dramatic impact on the style of investing we’ve seen within the context of what Morgan believes is still an intact bull market in precious metals.

“I really can't say this enough,” Morgan said. “Certainly if you choose the right equities you can outperform, but there's a lot less risk for a money manager to just buy SLV or GLD because they don't have to worry or do the homework or study what's required.”

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