Gold reaches the top of the 15-month flag
Since the start of the COVID-19 virus event, gold has climbed more than + 26% to highs near $ 2,090 on August 7, 2020. Yet in the past 15 months, gold has dropped in a lateral price pattern. This price rotation set up a very large Gold Pennant / Flag formation which recently hit the APEX of the Flag setup.
This is very important for two reasons. First, as global central banks begin to plan and prepare for a more normalized monetary policy and tackle excess credit and inflationary price concerns, the benefits of gold as an instrument of cover become more valuable. Second, after a massive rise in asset prices and an even bigger global attempt to stimulate the economy after the COVID-19 virus event, the world has never been in this scenario. Interest rates near zero, excessive amounts of money and credit around the world, asset prices showing trends close to hyperinflation, and global central banks taking very little action to address economic concerns futures.
Gold’s sparkle could grow for global investors
The luster of gold over the past 15 months has declined slightly. Global central banks, businesses and consumers have embarked on the easy money rally and have ignored the risks at hand. Today, China’s economic concerns and corporate debt problems continue to plague global markets. Investors are suddenly realizing the possibility of an increase in global risks over the past 12+ months – without abating.
Recently, China’s economic and credit / debt problems have spilled over into broader market concerns. What was previously more of a rated debt issue has become a global concern, as China’s demand for cheap credit over the past 8 years may have created the elements for a perfect storm (source: Yahoo! La finance).
I published research papers on this subject several months ago – which are still relevant today.
After reviewing some of my previous research articles, I urge you to consider a unique situation that may be occurring in global markets at this time. I think the US markets have entered a new phase of the amortization cycle (started towards the end of 2019). As the US dollar continues to try to maintain above the $ 90 ~ $ 91 level, we could enter an economic crisis in foreign markets brought on by the easy money policies of the United States over the past 12 years. past years and more. If so, then the US stock market and the US dollar could continue to show strength during a foreign market collapse – also as gold and silver start to rise.
What could happen next
This type of event will eventually spill over into U.S. markets as concerns grow about depth and cross-border economic issues if an event of economic contagion continues. Still, I think initially US assets and the US dollar may increase as global traders / investors move away from the risks of the global / Asian market and invest capital in safer US stocks and the US dollar. . This can trigger a rallying phase in the US stock market and push the US dollar above $ 95-96 briefly before traders realize the full scale and scope of this potential global crisis in the making.
This daily gold chart highlights the prolonged formation of the pennant / flag price and how gold started to see increased trading volume in what appears to be an upward price breakout. Still, gold needs to break through two key levels before considering this potential rally phase confirmed: $ 1,845 and $ 1,920.
Fibonacci price extensions show $ 2,600 as potential price target for gold
This weekly gold chart highlights a longer term Fibonacci price extension pattern. This suggests that $ 2,240 and $ 2,600 are likely to be price targets for gold if this rally continues. Many traders believe that the last 15+ months of sideways trading in gold has formed a “handle” for a larger “cup-n-handle” price pattern. Ideally, I would like to see a rally in gold above $ 1925 ~ 1940 before trying to confirm the “cup-n-handle” pattern.
My interpretation of the world markets and gold is exactly as I said above. Gold is starting to become more attractive to global investors as the Chinese debt and economic crisis continues. The risks increase if the economic contraction in China / Asia continues. Global risks are already excessive after more than 24 months of extensive world central bank functions, easy credit and rising inflation. As a result of inflation, price pressures will eat away at the profits of many companies. Slowing consumer demand could create a big hole in demand for many assets.
Traders should prepare for a period of price volatility by the end of 2021 as these issues continue to resolve. My technical analysis suggests that this rally could continue until early January 2022. My cycle analysis indicates that a price trend change could begin after around January 18th. Yet I also believe that this potential gold rally is only just beginning and global worries could escalate as the US stock market recovers. This is because global traders are piling up in US assets / stocks while trying to avoid economic / debt issues in other parts of the world.
Gold will continue to react to this new worry and fear as it invades the minds of traders. Gold’s luster will likely continue to grow – which could push gold above $ 1950 before the end of 2021. Time will tell.
You want to know more ?
Follow my research and find out how I use specific tools to help me understand price cycles, configurations, and target price levels. Over the next 12-24 months, I expect significant price fluctuations in the US stock market and other asset classes around the world. I think markets are starting to move away from the phase of continued recovery in central bank support and could form a reassessment phase as global traders try to identify important next trends. Precious metals will likely start to act as a suitable hedge as caution and concerns cause traders / investors to turn to metals.
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