How high and how low can Gold go in this cycle?
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In my honest opinion Gold will head much much higher in the next decade, and the double top at 2070 is bound to break. In the short term it also looks fairly bullish as it has reclaimed several key support levels, along with the 200-400 DMAs and the diagonal trendline. Getting up to 1900-1920 over the next few days or weeks definitely seems possible.
However in the medium term it isn't clear whether it is ready to resume higher. To me it looks more likely that Gold will get to 1600 and maybe even 1300 before getting to 3000. The quadruple bottom at 1670 looks vulnerable, as so does the triple bottom at 1450, while the 1300-1350 looks like a massive magnet. The market never retested that breakout and it could certainty revisit it before going higher.
But how could gold go lower if inflation remains high? Well inflation has been high for a while now, and yet Gold is still sitting below its 2011 ATHs. Central bank balance sheets have exploded, and yet gold remains quiet. In my opinion this has to do with several things, that could range from manipulation up to a strong dollar. Central banks are cornered and not many governments are profitable enough to add gold to their balance sheets. Some will potentially be forced to sell in order to support their currencies. As energy and food go higher, bonds yields will go higher, and therefore more opportunities will arise outside of gold. Being long oil is probably a better inflation hedge than being long gold. At the same time higher inflation forces people to sell stuff in order to cover their extra costs, and that includes gold. People bought gold as insurance for a period of high inflation, and now they need to exercise that option. Finally, as bond yields go up, if the dollar also goes up, then this could seriously harm gold. If the USD appreciates too fast along with interest rates going higher, then gold could collapse along with most other assets in the case of a liquidity squeeze.
In conclusion, I don't believe inflation is fully under control, I don't think we are done with QE and low rates by Central banks, however I do think that gold isn't ready for prime time yet. Gold is in a weird spot both fundamentally and technically, so I'd need to see a more bullish price action in order to be convinced that 3000 will come before 1300.
However in the medium term it isn't clear whether it is ready to resume higher. To me it looks more likely that Gold will get to 1600 and maybe even 1300 before getting to 3000. The quadruple bottom at 1670 looks vulnerable, as so does the triple bottom at 1450, while the 1300-1350 looks like a massive magnet. The market never retested that breakout and it could certainty revisit it before going higher.
But how could gold go lower if inflation remains high? Well inflation has been high for a while now, and yet Gold is still sitting below its 2011 ATHs. Central bank balance sheets have exploded, and yet gold remains quiet. In my opinion this has to do with several things, that could range from manipulation up to a strong dollar. Central banks are cornered and not many governments are profitable enough to add gold to their balance sheets. Some will potentially be forced to sell in order to support their currencies. As energy and food go higher, bonds yields will go higher, and therefore more opportunities will arise outside of gold. Being long oil is probably a better inflation hedge than being long gold. At the same time higher inflation forces people to sell stuff in order to cover their extra costs, and that includes gold. People bought gold as insurance for a period of high inflation, and now they need to exercise that option. Finally, as bond yields go up, if the dollar also goes up, then this could seriously harm gold. If the USD appreciates too fast along with interest rates going higher, then gold could collapse along with most other assets in the case of a liquidity squeeze.
In conclusion, I don't believe inflation is fully under control, I don't think we are done with QE and low rates by Central banks, however I do think that gold isn't ready for prime time yet. Gold is in a weird spot both fundamentally and technically, so I'd need to see a more bullish price action in order to be convinced that 3000 will come before 1300.
Note
Gold has swept all the significant lows and doesn't look as bearish as it used to. Until we get an actual liquidity event, I think gold can keep rallying from here. A close below 1600 would be pretty bearish and could indicate 1300-1400 is next, but until then, gold could remain strong. A lot will depend on how much the Fed keeps tightening from here, as the market indicates they've already drawn enough. If they get to 5-5.25% in the next three meetings, I think a big crash is coming in the next 12 months. If they reach 4.5-4.75% and pause, we might escape the big hit, and gold could perform better.
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