Today Gold hit the June 19, 2020 low after a very aggressive 2-day selling sequence. The dominant pattern since the August Highs (All Time Highs to be more exact), is a Channel Down and to better illustrate it I have used the Fibonacci Channel.
As you see most of the price action since the All Time High (ATH) is concentrated within the 0.786 and 0.236 Fibonacci levels (blue zone). That is the High Volatility zone. The price only broke outside the Channel two times during these 7 months, once on August 12, 2020 to test the -0.236 Fib extension and on January 06, 2021 to test the 1.382 Fib extension. So we can say that this pattern has been impressively consistent for such a long period of time.
However this is the first time that the Channel Down has entered the Major long-term Support Cluster (green zone). That is basically the consolidation phase roughly within April 15 to June 15, 2020, which was when the market was undecided following March's first stimulus package and was looking for direction. So ahead of the new stimulus vote, can this Cluster offer the Support and buying pressure that the market needs once again? It is possible but will it be on the (current) top layer or the lower one (1670 - 1680).
At the same time the 1D RSI just hit its multi-year Support level. Every-time this level has been hit, Gold made a strong rise. Within the Channel Down in particular, the rise normally hits the 1D MA50 (blue trend-line). That typically happens to be at least on the 0.5 Fibonacci retracement from the previous Lower High.
So if today was the new Bottom, then the potential rebound should technically hit anywhere within 1815 - 1835. And if the stimulus gets voted, then the Major Support Cluster may offer the necessary demand to break the Channel Down upwards and reverse this 7 month bearish trend.
What do you think? Is the selling over for Gold?
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With the risk free rates (10 Year Treasuries) climbing out, Treasuries have to be considered as part of any CTA portfolio. Gold doesn't pay a coupon or any interest for that matter which makes it an inferior investment when treasuries pay a reasonable coupon. Additionally the return on Treasuries is now higher than Dividend yield return on Stocks. So Portfolio Managers are selling Gold and Stocks to buy into Treasuries. Unless rates retrace I don't see Gold hopping higher than early 1800's anytime soon. This may happen if the Fed start to do Yield Curve Control - buying longer term Treasuries to control the price of the 10 year rates which is a possibility but there is no signal yet by the Fed. Another option is for the USD to drop, since Gold is priced in USD. We are about to see $1.9 Trillion flood the market once the stimulus deal is approved (just got house approval and the Dems have a free pass in Senate if they are all on board). This will create a flood of dollars and in true economic terms will reduce the price of the USD. There is more chance that this will happen before YCC (if it does) gets enacted. How much higher this sends Gold is not known though since there are now more attractive investments. Another factor limiting the rise of Gold is speculation on Bitcoin which is competing with Gold for liquidity and volume. I am not saying that the two assets are inflation hedges, just that without the distraction of Bitcoin, Gold would be a lot higher. All-in-all my view is that I don't see Gold returning to $2000 anytime soon, without major changes to yield returns. In the meantime, I believe the metals Copper and Silver offer much higher chances of growth as they both have practical uses in the reopening of economies.
Rajendran
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Rajendran
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Weekly Chart
anand1988
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Its King Gold vs all! Stinulus has passes but nevertheless technically sooner bull rally will come once the monthly bear rally is over. I count 1687 as major reversal zone
SaradisVagalatis
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@anand1988, you definitely know the game,
excellent judgement
and time justified you...
Very detail analysis and outlook :) thx for sharing
CarpeMomentum
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I am still baffled that with all the money the FED and ECB (and other central banks) are flooding the system with gold is not considered a hedge in case things go sour. I take it therefore "the market" does not believe there will be any financial crisis. So gold may even recede further.