Gold. A short analysis of the current technical position.
We make no apology for focusing on the Technical Analysis aspects rather than the fundamentals. The Gold price IS largely propelled by expectations of price trajectory. That is to say the price of gold is largely driven by expectations of the price of gold! Whether we discuss anticipated buying from savers and speculators in India and China or expectations of Central Bank selling, the price of gold is mostly about supply and demand and not about any calculation of intrinsic value.
Even if we do look to some idea of ‘fundamentals’ these are largely about price momentum. For example higher inflation expectations will tend to bolster demand for gold. In fact anything that reduces the ‘real’ value of U S Dollars will push the price of gold higher. This last point is a fact rather than a prediction as the price of gold is itself expressed in U S Dollars. However, note that with both of these observations we have suggested a direction of price momentum but in neither case have we been able to suggest an extent such momentum nor certainly any idea of a price level that would represent ‘fair value’.
Gold is certainly not for everyone!
Gold has largely been trading as a simple US Dollar counterpart, so a weaker Dollar implies higher priced Gold and vice-versa. The recent Trump-rally driven by expectations of reflation and of re-leverage of the US Government’s ‘balance sheet’ would in the long-run lead to at least expectations of a weaker dollar. However, at least in the short-term gold does not necessarily move with this type of logic. Once again the gold price is much more about speculative supply and demand than about fundamentals. So let’s look at the ‘Technical’ picture in more detail.
Since reaching a peak of $1,921 in September of 2011 gold has fallen back, reaching a subsequent low of $1,046.54 in December 2015 and now trades at about $1,255
https://www.tradingview.com/chart/SQVFI3du/
Our analysis will refer to Fibonacci Retracements as well as to Simple Moving Averages. The picture above shows the various Fibonacci levels (see our Technical Analysis library module) from the peak in 2011 and down to the later low in late 2015. The price has gone (unsteadily) higher since then and we are now at the point where the market will soon reveal whether the recent upward moves represent a resumption of the long-term uptrend (so a reversal of the post 2011 downtrend) or else a short-term retracement of the post 2011 downtrend that will shortly be resumed. The market’s proximity to it’s 200 day Moving Average makes this interesting. If the market price can re-establish itself comfortably above the 200 day SMA (‘Simple Moving Average’) then it will appear likely that the long-term uptrend is to be resumed. Otherwise a few more failed attempts to get through the 200 day SMA will suggest that all we have seen is a minor retracement in an otherwise well established downtrend.
https://www.tradingview.com/chart/SQVFI3du/
Note the price action in this picture. The price has tried to break out above it’s Fibonacci retracement level as well as it’s 200 day Moving Average but generally speaking we don’t get convinced until there have been 1 or preferably 2 days of trading where the entire price action has been above these levels.
Therefore we have not yet done anything! We continue to monitor the price action and wait for confirmation as to which of the above expectations appear to be indicated as more likely.
We make no apology for focusing on the Technical Analysis aspects rather than the fundamentals. The Gold price IS largely propelled by expectations of price trajectory. That is to say the price of gold is largely driven by expectations of the price of gold! Whether we discuss anticipated buying from savers and speculators in India and China or expectations of Central Bank selling, the price of gold is mostly about supply and demand and not about any calculation of intrinsic value.
Even if we do look to some idea of ‘fundamentals’ these are largely about price momentum. For example higher inflation expectations will tend to bolster demand for gold. In fact anything that reduces the ‘real’ value of U S Dollars will push the price of gold higher. This last point is a fact rather than a prediction as the price of gold is itself expressed in U S Dollars. However, note that with both of these observations we have suggested a direction of price momentum but in neither case have we been able to suggest an extent such momentum nor certainly any idea of a price level that would represent ‘fair value’.
Gold is certainly not for everyone!
Gold has largely been trading as a simple US Dollar counterpart, so a weaker Dollar implies higher priced Gold and vice-versa. The recent Trump-rally driven by expectations of reflation and of re-leverage of the US Government’s ‘balance sheet’ would in the long-run lead to at least expectations of a weaker dollar. However, at least in the short-term gold does not necessarily move with this type of logic. Once again the gold price is much more about speculative supply and demand than about fundamentals. So let’s look at the ‘Technical’ picture in more detail.
Since reaching a peak of $1,921 in September of 2011 gold has fallen back, reaching a subsequent low of $1,046.54 in December 2015 and now trades at about $1,255
https://www.tradingview.com/chart/SQVFI3du/
Our analysis will refer to Fibonacci Retracements as well as to Simple Moving Averages. The picture above shows the various Fibonacci levels (see our Technical Analysis library module) from the peak in 2011 and down to the later low in late 2015. The price has gone (unsteadily) higher since then and we are now at the point where the market will soon reveal whether the recent upward moves represent a resumption of the long-term uptrend (so a reversal of the post 2011 downtrend) or else a short-term retracement of the post 2011 downtrend that will shortly be resumed. The market’s proximity to it’s 200 day Moving Average makes this interesting. If the market price can re-establish itself comfortably above the 200 day SMA (‘Simple Moving Average’) then it will appear likely that the long-term uptrend is to be resumed. Otherwise a few more failed attempts to get through the 200 day SMA will suggest that all we have seen is a minor retracement in an otherwise well established downtrend.
https://www.tradingview.com/chart/SQVFI3du/
Note the price action in this picture. The price has tried to break out above it’s Fibonacci retracement level as well as it’s 200 day Moving Average but generally speaking we don’t get convinced until there have been 1 or preferably 2 days of trading where the entire price action has been above these levels.
Therefore we have not yet done anything! We continue to monitor the price action and wait for confirmation as to which of the above expectations appear to be indicated as more likely.