Gold has been moving up very nicely after breaking out of the quarterly squeeze (silver is also breaking out of a quarterly squeeze now).
But the question is, where to from here?
Higher...much higher...
But in the near-term the outlook is a little bit more complex, so let's take a quick look at the yellow metal.
As you can see we are fulfilling the multi-year cup and handle formation on gold, the measured move of which would indicate $2,800 USD/ ounce gold.
The other level i need to draw your attention to is the 127.2% fib extension target at $2166 USD, this may very well act as a interim target for gold before a period of consolidation may occur (i do not expect a massive sell-off at this level, however it is a level where selling may occur).
The other point i want to address is the correlation between the US10Y Yield (inverted) and gold.
Whilst i agree with the research that highlights the strong correlation between the two, i do not believe that it is the best indicator for a potential pullback in gold.
As we know the federal reserve has been directly monetizing US debt to pay for the enormous deficits the US is racking up to accommodate the global lockdowns.
fred.stlouisfed...h/fredgraph.png?g=tM7p
This, in my opinion, has distorted the US bond market sufficiently to compromise SOME of the signals that it may produce.
The bond markets are highlighting deflation fears, however the demand is not coming from investors, but rather from the abyss that is the federal reserve's checking account.
Bond investors are fleeing US treasuries (and the negative coupon rates) and seeking a safe haven from INFLATION as a result of the massive stimulus that the government will have to introduce to fill the void in the economy.
We can see this if we look at the DXY (inverted) against gold.
The USD is TANKING against almost all of the trading pairs...Why???
I can see several reasons;
1) Damage to the economy and reduced output/demand (less able to demand compliance via economic/ trade threats)
2) Massive government spending and the perception that a UBI is the only way to prevent a tsunami of further unemployment
3) Political and social instability that rivals some 3rd world countries
Simply put, many investors are waking up to the realization that the US may not be the financially prudent steward of global finances that they once thought they were.
In other words, gold will continue to rally until the USD begins to regain strength, so do not look at the bond markets for clues, look at the FX markets.
As long as the DXY continues to fall, then gold will continue to rise, furthermore, the DXY has also formed a very dangerous monthly double top formation, should the uptrend from 2011 be decisively broken, then i see very little support until around 87 (a further 5% drop from current levels).
Let me know what you think, are US10Y Yields still the indicator to watch for gold? Or do you think that some of their efficacy has been diminished from untold money printing and the 'Fed Cap' on yields?
-TradingEdge
But the question is, where to from here?
Higher...much higher...
But in the near-term the outlook is a little bit more complex, so let's take a quick look at the yellow metal.
As you can see we are fulfilling the multi-year cup and handle formation on gold, the measured move of which would indicate $2,800 USD/ ounce gold.
The other level i need to draw your attention to is the 127.2% fib extension target at $2166 USD, this may very well act as a interim target for gold before a period of consolidation may occur (i do not expect a massive sell-off at this level, however it is a level where selling may occur).
The other point i want to address is the correlation between the US10Y Yield (inverted) and gold.
Whilst i agree with the research that highlights the strong correlation between the two, i do not believe that it is the best indicator for a potential pullback in gold.
As we know the federal reserve has been directly monetizing US debt to pay for the enormous deficits the US is racking up to accommodate the global lockdowns.
fred.stlouisfed...h/fredgraph.png?g=tM7p
This, in my opinion, has distorted the US bond market sufficiently to compromise SOME of the signals that it may produce.
The bond markets are highlighting deflation fears, however the demand is not coming from investors, but rather from the abyss that is the federal reserve's checking account.
Bond investors are fleeing US treasuries (and the negative coupon rates) and seeking a safe haven from INFLATION as a result of the massive stimulus that the government will have to introduce to fill the void in the economy.
We can see this if we look at the DXY (inverted) against gold.
The USD is TANKING against almost all of the trading pairs...Why???
I can see several reasons;
1) Damage to the economy and reduced output/demand (less able to demand compliance via economic/ trade threats)
2) Massive government spending and the perception that a UBI is the only way to prevent a tsunami of further unemployment
3) Political and social instability that rivals some 3rd world countries
Simply put, many investors are waking up to the realization that the US may not be the financially prudent steward of global finances that they once thought they were.
In other words, gold will continue to rally until the USD begins to regain strength, so do not look at the bond markets for clues, look at the FX markets.
As long as the DXY continues to fall, then gold will continue to rise, furthermore, the DXY has also formed a very dangerous monthly double top formation, should the uptrend from 2011 be decisively broken, then i see very little support until around 87 (a further 5% drop from current levels).
Let me know what you think, are US10Y Yields still the indicator to watch for gold? Or do you think that some of their efficacy has been diminished from untold money printing and the 'Fed Cap' on yields?
-TradingEdge
