A Case To Be Long Gold

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Since the beginning of the year, I've been seeking an opportunity to invest in gold, and I believe there's a compelling case from macroeconomic, fundamental, and technical perspectives.

Macroeconomic Perspective on Gold

With President Trump returning to office, it's important to consider the economic impact of his proposed income tax reductions. Lowering individual taxes increases disposable income, leading to higher consumer spending without incurring additional debt. This contrasts with lowering interest rates, which encourages spending through borrowing, potentially having a slower effect on inflation compared to direct fiscal measures like tax cuts.

The recent stimulus checks have shown a direct impact on inflation, and similar effects could arise from income tax cuts, especially for tipped workers. Investors often turn to gold as a store of value during inflationary periods, making it a potentially attractive investment under these conditions.

Fundamental Analysis of Gold

Currently, the price of gold relative to the SPX ( GGOLD/SP:SPX ) appears undervalued. Additionally, the GOLD/SPX ratio is at a support level, indicating potential for appreciation.



Seasonal Trends

Historically, over the past 18 years, gold has shown strong performance from January to late February, posting negative returns only four times. Even in those instances, the losses were minimal compared to the gains during positive years, suggesting a favorable seasonal pattern for gold investments during this period.



Technical Analysis of Gold

Gold has been in an uptrend, and after a significant pullback, there appears to be an opportunity to enter the market. The recent large bearish movements may indicate a slowdown in the weekly trend, leading to a consolidation phase where the market establishes a new price range.



Conclusion

Gold presents a promising opportunity for inclusion in a long-term investment portfolio, potentially offering substantial returns. Monitoring the risk/reward profile is essential, and adjustments may be necessary based on market developments. If the desired entry point isn't reached and a bullish inside bar forms this week, next week's entry could be even more favorable.

Good luck and happy trading!

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