Gold Price – Why the correction & where to from here?

Gold has had a wild old ride over the last month, surging to highs not seen in a year before falling back to August levels over the last week. Today we look at why and where to from here?

The biggest fall came mid this week when President Biden nominated Jerome Powell to continue for 4 more years as chair of the US Federal Reserve rather than the expected nomination of Lael Brainerd. Brainerd was perceived to be far more dovish (loose monetary policy) then Powell.  Yep, looser than the guy who printed 40% of all the US dollars ever created in just one year, who is keeping rates at 0.00-0.25%, and is slowly tapering through to July his $120b/month QE program.  Powell is the ‘hawkish’ nomination!

Regardless, the perception is that this will be US dollar positive and gold negative with no regard to the likelihood that (even) Powell has already misinterpreted the inflation signals as ‘transitory’ (his word and now broader inflation vernacular), tightened too little too late, and made the ‘policy mistake’ of the century. In other words, if gold was being bought up in expectation of Brainerd as Fed chair and inflation allowed to overshoot, we’d respectfully suggest that horse long since bolted from the yard and hence the bounce now underway with gold as others realise the same.  Sometimes a picture paints a thousand words as they say.  The tsunami of inflation being dealt with by the US Fed ‘tapering’, the Bank of England saying they would raise rates and then not, the ECB steadfastly sticking to their -0.5% rate and our own RBA digging their heals in on rate rises may best be illustrated as follows:

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Tightening too late, too quickly will risk a market ‘event’ of epic proportions given it is a market built entirely on that easy money being ripped away.  So whilst gold has been buoyed on inflation fears alone, the prospect of again being the hard asset safe haven play looms large.

So what do the charts say? 

AG Thorson who is the Technical Analysis Expert & Editor at this week posted this update:

  • Precious metal plummeted on Monday after Biden reappointed Powell to the Fed.
  • Prices are dropping into a cycle low and should find support in the coming days.
  • Sentiment may finally be shifting in golds favor. I see the potential for a strong snapback rally heading into 2022.

Gold Price Daily Chart

Gold prices peaked in mid-November, forming what appears to be a triangle pattern. Cycle-wise, I'm expecting a bottom between now and the first week of December. It feels like we are one news event away from a sharp reversal higher. Prices would have to break below $1720 to represent something more bearish.

Gold Cycle Update

Biden kept Powell in charge of the Fed, and gold prices are correcting into a 4-month low (pink arrows). The shorter 36-day cycle (light blue) is also due around now. With gold prices already below $1800, it looks like prices may come down to test the lower triangle boundary near $1740. Given this scenario, I suspect gold will bottom between now and the December 3rd employment report.

Note: We had a similar dual-cycle in late November last year. Provided accelerating inflation data, I suspect gold will break upward from the triangle pattern in late December or early January 2022.

Coincidentally, just after the above charts were posted gold hit a bottom of USD1778 and has since bounced but not convincingly and now at USD1788 at the time of writing.  Whether that was the bottom or more correction to happen over the following week as he predicts is yet to be seen. As they say, only monkeys pick bottoms….

From a Fibonacci perspective (courtesy of The Great Martis) it looks amazingly constructive, ala USD2100 by January: