The gold price closed the first quarter with a record decline since 1982. Physical metal volume in gold ETFs dipped to an all-time low since May 2020, and large speculators slashed their net long precious metal position to nearly a two-year low. The decline in the price of gold, which does not generate any interest income, is due to the rise in bond yields and the dollar.
How long will the fall in the price of gold continue, and what signs will indicate that it is already possible to buy it? Nikolay Dudchenko, an independent financial analyst, answered a question from Fortrader magazine.
– In our last review dated March 18, we looked at what is happening with the gold market and what further events may affect the situation. Let’s take another look at the following factors.
This week, the International Monetary Fund raised its forecast for global economic growth to 6% in 2021 and to + 4.4% in the next 2022.Slightly less optimistic organizations – the S&P rating agency and the World Bank also improved their forecasts for GDP growth in 2021 to 5.5% and 2.9%, respectively.
Indeed, despite a possible new round of outbreak of diseases, the global economic situation is gradually improving. Manufacturing activity and inflation are on the rise in most countries. Judge for yourself:
- The index of production prices in Germany and the USA according to the latest data in annual terms is + 1.7%; in the Eurozone it was + 1.3%.
- In Australia and New Zealand inflation expectations are also growing by + 4.1% and + 1.9%, respectively.
At the same time, the majority of inflation targets remain at the 2% level…
The consequence of the growth of producer price indices will be a gradual refusal of global regulators from stimulating policies and a smooth transition to restraining measures, and this may have a positive effect on the oil and gold market in the long term.
If we look at the derivatives market, the picture is as follows:
The gold futures market is in a little contango, which means traders can arbitrate to buy a physical asset and sell futures. The delta of one-month $ 1,710 per ounce call options is 0.68, which means that most market participants believe that the price will continue to stay above that level over a 30-day horizon.
Technical picture for the gold market
On a monthly time frame, the gold price corrected by 50% from the momentum that began in 2018 and ended with the formation of a high in August last year. At the moment, the trend continues to remain bullish and it will be possible to speak of a trend change only if the price drops below $ 1580 per ounce (61.8% Fibo correction). If not, then the likelihood of continued growth is higher – by the way, we also talked about this 2 weeks ago.
On a younger daily interval, a “double bottom” pattern is formed, which will be completed only after the price breaks out the confirming line (approximately the level of $ 1750 per ounce). In classical graphical analysis, in order to determine the target, in this case, it is enough to project up a line from the two formed minimums (bottom) to the confirming line. Those. in our case, the target will be approximately the level of $ 1825 per ounce. The 200th moving average is located approximately in the same place.
Conclusions on the gold market: As before, my view of the current situation remains neutral. I do not yet believe in the possibility of further price decline. Short-term speculative purchases are possible when the price exceeds $ 1,750 per ounce.
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