Two factors are driving gold prices to new all-time highs. One is rising tensions in the Middle East, and central banks around the world are moving towards a more dovish or accommodative stance. I believe there is further upside room for gold, either in the underlying bullion market or in major gold miners like Harmony Gold (HMY). Before we start, I would like to say that I believe that the broader stock market remains in a secular bull market, with monetary easing from global central banks driving stock markets up significantly in the coming quarters, on the back of the artificial intelligence boom. It is important to point out that this is what I am thinking. However, due to seasonality, rising tensions in the Middle East, the next FOMC meeting not until November, and the start of Q3 earnings season being two weeks away, we are entering a bit of a holding period and the focus is on the Middle East. It seems to be concentrated. Gold futures will break through the $1,850 and $2,100 resistance levels currently acting as support and then test technical resistance/target levels derived from the parallel channel near $3,000 per ounce. From a macro perspective, gold failed to rally from 2020 to 2022, frustrating many gold bulls who were hoping for a rally during this volatile period. The stock market was selling off as inflation rose. But to my mind, the important thing was that real interest rates were rising. The way I define “real interest rates” is the prevailing nominal yield on bonds (in this example, 10-year Treasuries) adjusted by the expected level of inflation over a 10-year period. While the prevailing 10-year bond yield was rising, the expected inflation rate was falling. Simply put, the real interest rate is how much money you'll actually earn on a bond investment, adjusted for inflation. If this number continues to rise, there is little reason to hold low-yielding metals. As the real 10-year interest rate began to fall as the market priced in a Fed rate cut, real yields fell, creating an environment that encouraged gold to rise. How to play with stocks Harmony Gold is a South African-based gold mining company with a dividend of 1.2%. Looking back to the late 1990s on a monthly chart, the stock is trying to break through the downside resistance at the current $11.25 level. I currently hold a 1% allocation of HMY in Inside Edge Capital's dividend portfolio. Moving on to the daily chart, which highlights a consolidation near the pending monthly breakout level, I intend to increase my holdings to 2% once it breaks out on above-average volume. The 50-day average volume is currently 4.3 million shares, so let's set a target of $11.50 on 5 million shares as an additional trigger. In conclusion, while concerns about the situation in the Middle East are driving gold prices higher, what is more important and sustainable is the shift to an accommodative fiscal policy stance by central banks around the world, which will push stock markets higher. I think it leads to. The result, believe it or not, is expected to be lower US yields and a weaker US dollar, which are the same conditions that generate a rise in US stocks. Therefore, my outlook is that gold will continue to rise in parallel with the stock market. However, if geopolitical tensions escalate into a full-blown crisis, gold should continue to rise, but my theory of stock market gains will be vulnerable. – Todd Gordon, Founder of Inside Edge Capital LLC Disclosure: (Mr. Gordon owns HMY with his asset management company Inside Edge Capital. Charts shown are MotiveWave and Optuma.) Expressed by CNBC Pro Contributor All opinions expressed are solely their own and do not reflect our opinions. Opinions are those of CNBC, NBC UNIVERSAL, its parent or affiliate companies, and may have been previously disseminated by these companies on television, radio, the Internet, or other media. The above is subject to our Terms of Use and Privacy Policy. This content is provided for informational purposes only and does not constitute financial, investment, tax, or legal advice or a recommendation to purchase any securities or other financial assets. The Content is general in nature and does not reflect any individual's unique personal circumstances. The above may not be appropriate for your particular situation. Before making any financial decisions, you should strongly consider seeking the advice of your own financial or investment advisor. Click here for the full disclaimer.
CHOOSE LANGUAGE
SELECT LANGUAGE BELOW
