Gold continues to exhibit all of the underlying features one looks for in a market which is deeply embedded in a rally to higher pricing. This market scenario in which gold pricing has been gaining value can be seen in both long and short-term studies.
The long-term studies confirm that beginning at the end of 2015 and the at the start of 2016 gold pricing reached a bottom with major support at $1040 per ounce. This price point was the conclusion of a long multiyear correction taking gold from the highest price on record above $1900 to just above $1000 per ounce. Immediately following this bottom, gold prices traded to a higher high than the previous high. Prior to 2016 the overall characteristic of price over time was a series of lower price highs, and lower price lows until the end of 2015.
The rally immediately following the bottom which occurred at the beginning of 2016 took pricing roughly $338 higher, the first instance in which gold made a higher high than the previous high. From that price point gold began a correction which took pricing to $1128 per ounce, well above the prior low at $1040. For the next three years gold pricing found major resistance at approximately $1370 per ounce, and although corrections would consistently trade to a higher low, traders were not able to move prices above $1370.
This created a pattern called an ascending bottom and flattop. Throughout 2016, 2017, and up until the end of 2018, every price correction contained a higher low than the previous low. This is the definition of a bullish market. However, the inability for gold pricing to breach $1370, a total of four times kept pricing in a narrow and defined trading range.
In January of this year gold pricing maintained a bullish demeanor due to the series of higher lows, until May 2019 when gold hit $1273 immediately following a respectable rally. The rally which began at approximately April 29 took gold from $1257 up until this week when it hit it’s a yearly high, which is also the highest value gold has had since 2013 when it hit $1461.90 in trading last night. Currently gold futures are trading up $19.30 and fixed at $1451.80.
What is most impressive about this recent rally is the fact that it is once again acting as a safe haven asset which is not been seen in market sentiment for quite some time. In fact, over the last four months it has been trading in tandem with U.S. equities as the Federal Reserve along with other global central banks had been signaling that they will return to a more accommodative monetary policy by reducing interest rates. This dramatic pivot by the central banks and the Fed from a much more hawkish monetary policy that began with quantitative normalization, followed by a period of quantitative tightening.
This last rally occurred because of an anticipated rate cut by the Federal Reserve which occurred this week. Although Chairman Powell suggested that the series of rate cuts will not occur over a long and protracted time period, he also left the door open for more rate cuts this year. That fact alone will continue to have a bullish influence on market sentiment. Lastly the decoupling of the positive correlation between equities and gold seems to have flipped back to a negative correlation in which investors use safe haven assets such as gold to protect their portfolio when they believe that the equities markets could weaken dramatically which is exactly what we have seen this week.
Wishing you as always, good trading,