When I wrote the post “Has Gold Reached The Top?” in the last week of May 2016, gold was in correction phase and trading in $122X range. After reviewing various indicators and historical trends I concluded my post with:
“Based on the historic and cyclical gold market trends, I am quite convinced that it is the right time to maximize my investments in gold sector and take advantage of any pullbacks to add value stocks to my precious metal and gold mining stock portfolio.”
Within the next five weeks gold reached a mid-term high of $1374.9 on July 5th, 2016 and tested the five year downtrend line. For the last five months gold has been trending downwards but during the US 2016 election week, we have seen very volatile gold market with gold futures trading between $1218 to $1340 range. People were expecting higher gold price after Trump’s victory in 2016 US elections but Trumpmania caused opposite effect on gold as instead of moving higher gold plunged to $122x range.
Majority of analyst currently are predicting the gold price to head towards $1000 or below but there are several analysts, experts and many gold-bugs who have opposite opinion expect the gold to move much higher in the coming years. I have been doing lots of reading and trying to collect useful information to keep myself on the right side of the gold’s future move. Here is the list of articles I have read:
Geoffery is very bullish and expects gold to explode $8000 or above in the next couple of years
In 2-5 months Somabull expects the price of gold should be retesting its highs from the summer.
Gold Cycles In Every Time Frame • Wed, Nov. 2, 11:18 AM • Andrew McElroy
According to Andrew’s Elliot Wave technical analysis gold finished it’s upwards long wave III in 2011. Until now gold has only completed the first leg down of wave IV and may reach to $1000 or below when the downward correction is complete. However, in the next couple of months he expects gold to rally to $1,460 with a slim possibility of $1,537.
Before getting back into the precious metals, DoctoRx wants to see some selling panic in the gold market, speculators run away, and then signs of gold and silver making higher lows into the selling panic before risking significant money in those markets. The way oil, platinum, silver and the US dollar are acting, He projects gold breaking through its cyclical lows to $1,000 and then possibly far below that.
Druckenmiller, a well known billionaire, sold all of his gold holdings a day before US election after being inspired from Donald Trump’s infrastructure expenditure plans. Geoffery, however, is still bullish on gold
Geoffery stands by his bullish call for gold and gold miners despite the sharp pullback and selloff after Trump’s election. He advises his readers not to sell gold or mining stocks in panic and keep a lot of cash so that you are able to ride out any volatility in gold over the next few months.He mentioned an old saying, “It’s hard to go bankrupt if you don’t have any debt.” Likewise, it’s hard to go bankrupt if you keep 30% cash in your portfolio at all times.
Google Trend As An Indicator to Locate Gold Top
The chart below shows Google trends for “buy gold” from 2004 to present. It can be seen clearly that even with the volatile gold price lately we haven’t seen any surge in “buy gold” like 2011.
Gold moved higher by 66 dollars to $1333 on the initial fears of a Trump victory and tested the five year downtrend line (drawn from 2011 highs) on the election night when early polling results were showing Hilary’s lead. Then there was a sharp $122 dollars decline within the next 72 hours of Trump’s victory in the US 2016 election, when a more calm and moderate Trump’s was revealed. Since November 11, 2016, gold has been trading above the strong support level of $1200 and is heavily oversold based on RSI and Slow Stochastics, see the daily OHLC chart below:
The mid term and longer term outlook of gold stays bullish as long as gold is trading above the $1200 level. Once the gold bounces off from its current lows and breaks the five year downtrend line currently sitting at $1327, there are strong chances for gold to test the the strong resistance at $1530.
The long term Elliot wave gold analysis by QuadG, a former member of Kitco Gold forum, is very impressive and suggest $13000 gold target by 2046. According to the analysis gold price move from 1999 to 2011 was a 7.5x move from 1999 low of $251, was the first sub-wave of the major uptrend since 1999. Gold corrected by about 45% from 2011 high of $1920 to reach the the recent bottom of $1046 in late 2015. The next upward move of the major gold uptrend will be higher in magnitude i.e., about ten times the recent bottom of $1046 will cause the price to soar up to $10000 in the coming years. Read the detailed analysis here.
Cost of Calls in Relation to Puts
One of the indicators people use to measure the amount of hot money flows either into or out of gold is to look at the price of call options in relation to put options as explained in Gold Insights: U.S. Elections And Gold. In the seekingalpha article Gold Insights: Gold Is Not Dead, It’s Just Oversold the author thinks that the gold sell-off is overdone here. The chart below measures the cost of calls in relation to puts. When the price of call options is significantly more expensive relative to gold, the positioning starts to lean towards overdone on the upside and when puts are significantly more expensive vs. calls, the bearish sentiment is overdone.
Since the change in positioning has been rather severe from bullish to bearish the author thinks that the chart should revert back closer to neutral, which in turn should lead to gold finding a bottom rather quickly. In writer’s estimation, gold will continue vacillating between $1250 and $1300 for the remainder of the year.
Despite the volatile movements in gold price during and after the election, gold’s long-term fundamentals are strong. Gold is most likely going to stay above $1200 but if for any reason its slides further below $1,180 – $1,170. we will need to re-evaluate the future gold trend. Some people recommend to hold the existing positions in gold and gold mining stocks, if you can digest sharp and scary downward movements in gold in the next few months, as it will lead to a much bigger run up.