3 Critical Forces in Assessing Gold

Focus: COMMODITIES

Landon Whaley Image Landon Whaley CEO, Whaley Capital Group

Context is everything in life, and the same is true in markets. The more our world moves towards boiling everything down to 140 characters or a 10-second Snapchat, the more easily an event's context is lost or ignored, cautions Landon Whaley, CEO of Whaley Capital Group and editor of The Whaley Report.

When it comes to markets, understanding the current context of price action is crucial. It's the difference between successful investing and undergoing investing death by a thousand cuts because you're constantly on the wrong side of market moves.

What is the context of the recent gold price rally? To understand the context of any market's behavior, I rely on my Gravitational Framework to understand the three most critical forces, or gravities, that impact asset prices: fundamental, quantitative and behavioral.

Despite its price ascent this year, gold's gravities are decidedly bearish.

Fundamental Gravity: Bearish

U.S. economic growth accelerated for the last six months of 2016, and that streak continues. January's retail sales data were the latest in a growing number of economic data points showing that U.S. growth has improved for the seventh straight month.

The most important aspect of the monthly retail sales report is the trend in annual growth of the "control group," which accelerated from 3.4% in December to 4.0% in January. The control group's sales number is critical because it's used in the official calculation of GDP.

January's sales were a strong start to the year; they imply that consumer demand is markedly improving, and support surveys showing massive improvement in consumer confidence since the election.

People are putting their money where their confidence is, and it's bullish for the U.S. economy, and therefore bearish for gold.

Quantitative Gravity: Bearish

I track a number of quantitative factors to help me time my trades.