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Is Gold Setting Up For A Rally Above $2000 Again?

By Chris VermeulenStock MarketsMay 28, 2021 04:47PM ET
www.investing.com/analysis/is-gold-setting-up-for-a-rally-above-2000-again-200582911
Is Gold Setting Up For A Rally Above $2000 Again?
By Chris Vermeulen   |  May 28, 2021 04:47PM ET
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The recent move above $1900 in gold shows that precious metals are likely entering a new bullish price phase. We highlighted this in a May 3 research article suggesting that a new advancing cycle phase may push gold to levels above $2100. If our research is correct, gold may continue to rally higher – reaching a peak sometime near mid-October 2021.

Gold Futures Weekly Chart
Gold Futures Weekly Chart

Our current Custom Metals Index chart shows the recent strength of the upside price trend in precious metals. Once gold clears the $1960~$1965 level, prices should continue to advance to $2067, then $2305 moderately quickly. The $2067 level represents resistance just below the recent highs from August 2020 near $2087. It is important to understand how price moves in advancing/declining waves/phases over time. At this stage of the precious metals rally, which I believe is very similar to the 2003 to 2006 gold rally, we may see gold continue to rally higher while the US/Global markets continue to trend moderately higher. This is a shift in how capital is being deployed in anticipation of the US Fed and global central banks entering a tightening phase. This process also took place in 2005~2007 as the US Federal Reserve raised interest rates attempting to deleverage the markets in an orderly format. The major stock market indexes and precious metals continued to rally throughout this event because traders/investors had already started hedging risks of an unknown market event while the Fed continued to raise rates.

Currently, we know the US Federal reserve is planning on acting to potentially raise rates in 2022 or 2023 and there has been some discussion that the US Fed may need to take action earlier to avert inflation concerns. The similarities between the 2004~2007 gold rally to what we are seeing in gold right now, are uncanny. We are seeing gold rally to levels close to $2000 near an early stage of concern related to any potential deleveraging/reversion event. In 2004, gold was trading near $350 and reached a high of $1923.70 in 2011 – a rally totaling over 450%. If something similar happens based on the recent price lows, gold could rally to levels over $6500.

Our researchers are focused on a target level near $3750 right now. We believe the next advancing wave in Gold, over many months, will target $2300, then $3200, then $3750. See this research article from May 16 for more detailed price targets/setups.

Custom Metals Index Weekly Chart
Custom Metals Index Weekly Chart

As we move into the early Summer months, the one thing that everyone seems to be asking is “When will the markets start the next downside price correction or reversion event?”. A lot of the emails and questions we receive are related to our recent Gann research article as well as some of our other research articles related to the Excess Phase Peak patterns we’ve highlighted in Bitcoin, Apple (NASDAQ:AAPL), Tesla (NASDAQ:TSLA), and others.

The answer to this question is as follows

  • We don’t have any clear timing regarding if or when a reversion event will take place yet.
  • We do have research, our Gann research article, that suggests this type of event would likely happen between April 2021 and August/September 2021.
  • We also have some evidence that certain sectors have already started to execute the Excess Phase Peak pattern that we’ve highlighted in many interview and research articles recently.
  • Currently, the markets have moved into a broad sideways Flagging pattern, which may be the start of the broader market peaking pattern. We don’t have any confirmation of this type of setup yet though.
  • Our researchers are watching for a confluence of technical patterns across various sectors to help confirm our understanding of how and when any breakdown or reversion event may occur. We strongly advise technical traders watch the Transportation Index for signs of weakness ahead of any bigger reversion event.

Our Custom Volatility Index Monthly chart highlights how fast and far the post-COVID recovery event has come. In prior years, 2017, 2018, and 2019, this index was able to reach levels above 12~13 fairly consistently (a topping/peak price range), which was often followed by a moderate reversion event (in most cases 8% to 26% pullbacks). Currently, this custom index has reached levels above 14 and has begun to stall near 12~13 – well within the topping range.

Any price weakness resulting after reaching these lofty levels is likely to prompt a fairly large 11~20% pullback in the markets. If the right conditions setup, after we’ve seen a big global market recovery rally, the reversion event may be even bigger than we expect.

Custom Volatility Index Monthly Chart
Custom Volatility Index Monthly Chart

When will it happen? We are not confident in trying to make any date/time predictions at this point. How will it happen? Our guess is that it will happen as traders rush to the sidelines as a result of perceived market extremes and perceived general weakness in trends. How deep could it pull back? Our estimate is a minimum of 11% to 20% right now – possibly targeting the 2018~2019 lows.

What we can tell you is that the upward move in precious metals appears to be a leading trend suggesting global traders are moving to hedge risks related to the global market reversion event (very similar to 2004~2007). In this early stage hedging event, traders move capital into precious metals as a hedge against broader market risks and declines.

Is Gold Setting Up For A Rally Above $2000 Again?
 

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Is Gold Setting Up For A Rally Above $2000 Again?

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Comments (15)
Jeffery Uvang
Jeffery Uvang May 29, 2021 9:23PM ET
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Physical gold is better than Bitcoin in term of long investment.
Kian Amini
Kian Amini May 29, 2021 6:09PM ET
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yaayyii took 50 years to double...I dont understand why people stick to gold ..not that u dont a return..this yellow junk can not even beat inflation...what's the point??
Brian Zarb
Brian Zarb May 29, 2021 6:09PM ET
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You seriously need to educate your self. But just for the fun of it I am willing to waste 5 min of my life to type some sense into you. Silver / Gold are an alternative store of value to the reserve currency treasure bonds, in a time of crisis /Inflation. --- There are different kind of investment one can do, the most common being buying the physical metal. Whilst gold is more stable and provides a better hedge, Silver move faster and stronger. thus silver is typically chosen as a secondary store of value asset which is eventually converted to Gold as it perform better long -term. --- Having said this Investors often look at Blu-chip miners for very strong dividend value-investment type plays... for Example I hold a major position in Newmonth Gold and Barrick Gold which pay a very very good dividend... actually better then the average fortune 500 companies..(Whilst having TONS OF Free cash flow) --- So the real question here should, how can someone not actually consider the Precious metals?
la popeye
la popeye May 29, 2021 6:09PM ET
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nail it
Maripa Kaisi
Maripa Kaisi May 29, 2021 4:13PM ET
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this makes as to focus on gold to much on the market
Scott Garber
Scott Garber May 29, 2021 3:59PM ET
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Gold is making a nice run, but BTC is the future
Sulaiman Ishola
Sulaiman Ishola May 29, 2021 3:59PM ET
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BTC can be the future but precious metal will continue to take it path
Fabio falec
falec May 29, 2021 3:59PM ET
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When BTC fun boys come here begging money you get more convinced that you are fishing in the right pond.
Omar Ahmed
Omar Ahmed May 29, 2021 4:53AM ET
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Nosa Omorodion
Nosa Omorodion May 29, 2021 4:38AM ET
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I trade
Nosa Omorodion
Nosa Omorodion May 29, 2021 4:37AM ET
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hi my name is Nosa
Mr Doodl
Mr Doodl May 29, 2021 2:48AM ET
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When the stock markets correct, precious metals will decline, too.
Murali Brahmandam
Murali Brahmandam May 29, 2021 2:44AM ET
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don't know why fuu Ching is bad word
Murali Brahmandam
Murali Brahmandam May 29, 2021 2:43AM ET
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Gold can't go above$1965 because they will keep pushing gold lower and lower to buy stocks until both hit bottom
Jan Novy
Jan Novy May 29, 2021 2:43AM ET
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Indeed US economy is based on cheating and fiat money printed out of nothing.
 
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