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Charles Thorngren

When Donald Trump announced the introduction of steel tariffs a couple of weeks ago, sharper investors drew a collective breath. An already shaky, American stock market, could do without this. Many thought it might be some kind of Twittered bluff, or wishful thinking – until it was signed off.

Again, it seemed distant – and maybe something would change if enough countries protested. But no. The tariffs are real – and here to stay. So is the reaction of investors.

This is a chart of investor sentiment – put out by Sentiment Trader on Friday. It shows how the “smart” money is moving away from stocks right now.

Now, traditionally, when moves like this have occurred in the stock markets, investors have shifted into precious metals. But, as we know, there is a new kid in town – cryptocurrencies.

These have, collectively, had a hard time recently – losing more than half of their value – in some cases, (Ripple lost 85%) so it remains to be seen whether investors run to these as a “safe” haven for their cash. This is a big unknown.

In the meantime, all eyes are on what is in store for gold.

At the moment, we cannot really comment on the gold market, without reference to stocks, so this is a side-by-side screenshot of the daily charts of the S&P 500 and gold.

The first thing to notice on both charts (each of which starts in January) is the volatility and the size of the daily movements in play. The markets are uncertain.

From its all-time high at the beginning of the year, at 1) the S&P fell to what has become known as, the February panic low, at 2). Here, it fell through the support of the 21-day (blue line on chart), 55-day (green line), and 100-day (orange line) EMAs (Exponential Moving Averages) to hit the 200-day EMA (purple line) – a support which is rarely touched except in times of extreme price movement. It bounced from this, after re-testing it, to 3) where it quickly fell again to test the 100-day EMA – which held – and bounced back.

Since then, though, the price has fallen sharply – initially testing – and then falling through – the 21-day, and 55-day EMA supports at 4) and 5).

We now find the price back at the crucial 200-day EMA, at 6). This is the most dangerous point we have seen for stocks in many years.

If the price falls – and closes below – this 200-day EMA level – it is entirely possible we will see a correction of 15-20%, given the massive rise in stocks, and the overvaluation of many of the components of the S&P.

The big question, of course, is what this might mean for gold?

For the past month, or so, gold has been bouncing on and off of the 25-day EMA. A look at the chart shows it falling from, 7) down to, 8) before bouncing, yet again, to 9) from which, it fell back, again.

Over the past couple of days it has rebounded, tested the 100-day EMA once more, 10) and then broken through the resistance, of both the 25-day and the 55-day EMA, at 11).

What’s next? Good question!

If the S&P falls below the 200-day EMA – stays below – and tumbles – investors will pull the plug on stocks, and there will be a scramble to exit the market. This cash has to go somewhere – and our feeling is, the uncertainty of cryptocurrencies, combined with the fear of losing even more money, will lead investors back to where they have always gone in such times – precious metals.

This time, it is different, for sure. Gold may not skyrocket and go crazy but it will stabilize and it will keep your money safely parked until the storm is over.

There is something to be said for stability at times like these …

Noble Gold specializes in IRAs and 401(k) rollovers through precious metals and cryptocurrencies investments.

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