Gold, a reflationary asset with a defensive bias

8 years ago - Published by SAMT in Commodities, Expert opinion, Finance

The rapid rise in interest rates during H2 2016 and the concomitant fall of Gold prices did bring back memories of the 2012 -2013 sell-off of the Golden metal. Yet, we believe that this time is different: while the 2012-2013 was driven by the prospects of tapering which led to a subsequent rise in real interest rates, the current environment is more reflationary with measured improvement in inflation and growth worldwide. These economic dynamics should be supportive for Gold prices over the next 12 to 18 months. We would hence consider Gold as a reflationary asset with a defensive twist.

Gold Spot (USD/Oz)

(Weekly graph or the perspective over the next 2 to 4 quarters)

 

 

The sequences projected on both our oscillator series would see Gold in USD move up towards mid year / early Summer (lower and upper rectangles). Following that, Gold should retrace some of this move, possibly into the Autumn before moving up again towards year-end. In terms of targets, if we calculate the higher end of our corrective targets up (not shown), Gold could move up and retest last year's highs above 1'350 USD/oz. Beyond that, the next upside target range we can calculate (“I” impulsive targets range) would theoretically be above 1'500 USD/oz (levels potentially expected in 2018). In the meantime, the lower end of the “C” corrective down targets shown on the chart (right-hand scale) show the backstop levels for this uptrend (around USD 1'120/oz).

 

Gold Spot (USD/Oz)

(Daily graph or the perspective over the next 2 to 3 months)

 

According to the models we project on both our oscillator series on our Daily Gold (lower and upper rectangles), we expect a slight consolidation into the first half of May (USD 1'230 – 1'240/oz levels seem to offer worthwhile support: trend-line from December and previous support/resistance levels achieved during February and March). Following that, a new acceleration up could materialize towards June and possibly midyear. Once the resistance of our “C” corrective targets up is taken out (above USD 1'290/oz), the next level of targets, “I” impulsive up point to a range between USD 1'391/oz and 1'471/oz (right-hand scale).

 

Concluding remarks:

 

Following a slight retracement down into early May, we would expect Gold to remain quite strong until mid year. In terms of targets, we would first need to clear USD 1'290/oz. Above that, the next levels of targets we can calculate would lead us to retest 2016 highs (around US 1'370/oz).

 

Jean-Francois Owczarczak CFTe – SAMT Assistant Vice President – Geneva Chapter – jfo@samt-org.ch

 

Disclaimer: the above article is for general information and educational purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.