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Gold Record Seen Capped at $2,500 Through Q2

By Investing.com (Barani Krishnan/Investing.com)CommoditiesMar 09, 2022 05:41AM ET
www.investing.com/analysis/gold-record-seen-capped-at-2500-through-q2-200619595
Gold Record Seen Capped at $2,500 Through Q2
By Investing.com (Barani Krishnan/Investing.com)   |  Mar 09, 2022 05:41AM ET
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From the virtual circus in nickel trading, where there seem to be only buyers at the top, to the measured highs in copper, commodities appear to be in a hard-to-fail place now.

Ensconced within this is gold and its imminent strike at record highs, above levels last seen in August 2020. 

A solid favorite of safety-minded investors during the early days of the pandemic, gold fell out of favor in early 2021 as stocks, Treasury yields and the dollar took off instead as COVID vaccine drives revived risk appetites.

From there, it witnessed multiple failed starts and a drop to below $1,700 an ounce at one point, as doubts grew about its long-standing hedge against economic and political troubles. But now, gold’s back where it was 19 months ago—the $2,000 berth.

Gold Daily
Gold Daily

With US inflation at four-decade highs and the festering Russia-Ukraine war fanning gold’s wings like they never have over the past year-and-half, all sorts of price projections are being made for the yellow metal—from a modest $2,200 that would just rewrite its previous peak to lofty highs of above $3,000. 

We are in frightening times as unrestrained energy prices threaten to gobble up more of our income by the day, while the escalating confrontation between Russia and Ukraine puts the world at risk. All these suggest that investors need a store of value that’s beyond any security that even the safest fiat currency—the dollar—can offer.

That store of value would most likely be gold, which has been making higher highs and higher lows over the past two months—a perfect proposition for a bull market.

But gold’s history also shows a commodity that’s never been wildly out of control, with the typical zaniest daily move under 5%. Thus, you won’t get a nickel-like situation where the price of the Russia-dominated battery-making material went up fourfold in just four days.

You could, however, get a $400 premium over gold’s August 2020 top that will likely build over the next few months. That’s the premise that I and my long-time collaborator on commodity charts, Sunil Kumar Dixit of skcharting.com, have after poring over near- and medium-term technicals of gold.

But before getting to our technical analysis, below, are some fundamental views from analysts and price projections.

“Now that real yields are dropping in the context of a risk-off environment in financial markets, gold prices have renewed appeal,” Christopher Vecchio, senior strategist for precious metal, said in a blog that appeared on DailyFX.

Added Vecchio:

“It’s not just gold prices finding a bid in as a safe haven—though that’s a big contributor. Last week it was noted that ‘it’s World War 3 or bust, if gold prices are going to have any chance at a return to their highs,’ … and for all intents and purposes, we seem to have embarked down that path.”

Vecchio also noted that historically, gold prices have a relationship with volatility, unlike other asset classes. He explained:

“While other asset classes like bonds and stocks don’t like increased volatility—signaling greater uncertainty around cash flows, dividends, coupon payments, etc.—gold tends to benefit during periods of higher volatility.” 

“As war continues to rage in Eastern Europe, gold volatility has remained elevated, supporting the surge in gold prices.”

So, there you go: Gold’s proven tendency to swing beyond certain high or low ensures that you’ll never get a parabolic move like that in nickel—or for that matter palladium, which jumped $1,000 an ounce, or 42%, in less than 10 days to reach a record high above $3,417.

Goldman Sachs, meanwhile, has changed its 3-month forecast on gold to $2,300 ounce from a previous $1,950—putting on a $350 hike that somewhat matches the $400 premium that I and Dixit have laid out.

Goldman also moved its 6-month outlook for gold to $2,500/oz, from a previous $2,050 and the 12-month horizon to $2,500 from $2,150. 

It attributed the hikes to an increase in demand from consumers, investors, central banks, and to “rising geopolitical uncertainty.”

Gold Weekly
Gold Weekly

Gold futures on New York’s COMEX reached a record high of $2,221.70 on Aug. 7, 2020. In Tuesday’s trade, COMEX gold hit $2,078.80. At the time of writing, it hovered at $2,050.

The spot price of bullion reached an all-time high of $2,073.41 on Aug. 7, 2020. On Tuesday, bullion got to a session high of $2,070.29—just $3.12 short of the previous apex. At the time of writing, spot gold was at around $2,042.

Dixit, basing his read on the spot price, said with gold virtually challenging its $2,073 peak, the next breakout had a $400 upside potential forming a classic rectangle formation on the weekly bullion chart.

“But gold also needs to consolidate below the $2,073 resistance and the $2040-$2020 support before clearing through the $2073 for the next immediate targets of $2100-$2120-$2150,” he added.

Gold Monthly
Gold Monthly

He said a decisive weekly and monthly closing above $2,100-$2,150 would be a reliable affirmation for the $2,470-$2,500 move, probably sometime in the second quarter.

“On the side of caution, the point to watch would be reaction to dips, when the price reaches $1,980-$1,970, as this area would be the make-or-break zone on correction.”

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.

Gold Record Seen Capped at $2,500 Through Q2
 

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Gold Record Seen Capped at $2,500 Through Q2

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Comments (12)
max nomura
max nomura Mar 11, 2022 2:20AM ET
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I had said way back Gold will crosss 1850 this year but so many booed me on it
Benjamin USA
Benjamin USA Mar 09, 2022 5:36PM ET
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Lmao 2500 through Q2, what is that like 3 std dev? Yeah I predict oil wont be 300 through Q2 also.
Meru Pet
Meru Pet Mar 09, 2022 5:36PM ET
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gold at 2500 is much more likely
craig smith
craig smith Mar 09, 2022 4:58PM ET
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Barani, thank you for being a logical and practical analyst...not all are that way. Most of all, THANKS for actually communicating with your readers directly.
craig smith
craig smith Mar 09, 2022 4:58PM ET
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worst comment ever!
Alan West
Alan West Mar 09, 2022 4:49PM ET
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Gold isnt a ‘store of value’. The DJIA and property have left it in the dust.
SunilKumar Dixit
SunilKumarDixit Mar 09, 2022 1:44PM ET
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The last paragraph of the story....Gold tested 1975. Important to see day settlement and post settlement reactions.
MuraliKrishna Brahmandam
MuraliKrishna Brahmandam Mar 09, 2022 1:29PM ET
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I meant the GULF of Siberia where oil and gas industry profits from Ukraine situation
Barani Krishnan
Barani Krishnan Mar 09, 2022 1:16PM ET
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Some $2000 support :) All caved as oil tumbled today. Let's see what CPI does tomorrow.
MuraliKrishna Brahmandam
MuraliKrishna Brahmandam Mar 09, 2022 1:16PM ET
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This is a standard bull trap. Gold longs will see red in anticipation of a bad CPI both core and total CPI. Gold never had any support at 2000. Going forward gold will slide on down easily after many times
Stan Smith
Stan Smith Mar 09, 2022 9:38AM ET
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So the only real price discovery allowed is in over valued Stocks and Cyptos... rigged/capped all the same
Barani Krishnan
Barani Krishnan Mar 09, 2022 9:38AM ET
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Appears so, Stan.
Ben Hajciar
Ben Hajciar Mar 09, 2022 8:54AM ET
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Silver will follow
Barani Krishnan
Barani Krishnan Mar 09, 2022 8:54AM ET
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Theoretically, it should, Ben.
SunilKumar Dixit
SunilKumarDixit Mar 09, 2022 8:54AM ET
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Silver usually follows Gold though it has to listen to other economic conditions other than risk aversion.
Frank Jackson
Frank Jackson Mar 09, 2022 8:49AM ET
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Real rates? Real rates are inflation adjusted in my book. For example, at 7% inflation, we're running around -6-5% return on cash? Rates have never been more of a threat than some BS headlines that are nonsense.
Barani Krishnan
Barani Krishnan Mar 09, 2022 8:49AM ET
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I know, Frank. But that was Vecchio's thoughts. If you do notice my disclaimer, I publish divergent views as well to present a broader landscape of what the analyst community is thinking.
 
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