Gold Price Forecast – Long And Short-Term View Of Gold

They say, step aside so as to see the forest for the trees. And exactly the same thing can be said about higher time frames or historical parallels. With that in mind, how is the 2020 to 2008 analogy in the yellow metal doing?

In short, the long-term analogy in terms of prices to what happened in 2008 still seems somewhat intact:

In 2008, after the initial plunge, and a – failed – intramonth attempt to move below the rising support line, gold came back above it and it closed the month there. The same happened in March 2020.

During the next month in 2008, gold rallied and closed visibly above the rising support line. The same was the case in April, 2020.

In the following month – the one analogous to May 2020 – gold initially moved higher, but then it plunged to new lows and finally closed the month below the rising support line.

We haven’t seen the plunge last month, but we did see a move very close to the previous highs, just like what we saw in March. As the volatility is now somewhat smaller, it suggests that instead of seeing the slide in May, we might see it in June. This would also be in tune with the seasonal tendencies.

Let’s check how low gold could decline during this slide. In short, the above is based on the long-term gold chart and it hasn’t changed this week.

Our current (and it might change in the following days) estimate is that gold would decline to the 2016, 2017, and 2018 lows – slightly below $1,400. Why? Because this level is confirmed by several major highs, which makes it the strongest support that’s below the previous 2020 lows.

Moreover, back in 2008, gold bottomed about 8% below its initial September bottom. The recent bottom in gold was about $1,451. If history repeats itself, gold could decline to 92% x $1,451 = about $1,335.

In 2008, gold also declined by about 27% from its previous high. If the history repeats itself here, and gold topped yesterday (which seems quite likely), we can see gold’s bottom at 73% x $1,789 = about $1,306.

The 2016, 2017, and 2018 highs are the strongest gold support that we have close to the above-mentioned price levels. Gold’s fundamental situation is even better now than it was in 2008, so we think that looking for the support above the above-mentioned 2008-based price levels is more appropriate than basing it the above-mentioned gold trading tips. The 2016, 2017, and 2018 highs fulfill this requirement.

This means that gold would be likely to bottom between about $1,350 and $1,380.

Of course, the above estimates assume that gold would decline significantly and not modestly, when the USD Index does indeed break higher.

The way gold responds to USD’s rally from the current levels to the previous 2020 highs should tell us a lot about what’s really in store for gold in the following weeks.

Please note that the very long-term cyclical turning point in gold (marked with vertical, gray lines) is due in July. Until the 2011 top, these turning points were tops, and after the 2011 top – in each case – these turning points corresponded to major bottoms. If gold is to bottom in July, it’s about time for it to start declining. This factor serves, thus, as a bearish sign.

Having said that, let’s take a look at silver. In case of the white metal, its ratio to gold might be more important at this time than price itself.

As far as the short-term is concerned, we have a good indication from the GLD ETF that the rally has just ended yesterday. This is the case due to the triangle-vertex-based reversal that we have right now. This trading technique has proven to be useful many times in the previous months, so it seems to be worth to pay attention to its indications also this time.

Summary

Gold’s historical performance in 2008 still appears relevant to the yellow metal’s moves we see unfolding right now. The June seasonality would indeed support a temporary move lower. All in all, it’s likely that gold is currently topping out. This is further supported by the metal’s interaction vis-à-vis the faltering greenback – as it’s not rising in response, the king of metals is sending out a bearish message. Next, the long-term cyclical turning point in July hints at a gold bottom happening then.

The following days are not likely to be pleasant times for anyone who refuses to jump on the bullish bandwagon just because prices moved higher in the previous months. But what’s profitable is rarely the thing that feels good initially. As silver often moves in close relation to the king of metals, forecasting gold’s rally without a bigger decline first is thus likely to be misleading. The times when gold is trading well above the 2011 highs will come, but they are unlikely to be seen without being preceded by a sharp drop first.

Naturally, the above is up-to-date at the moment of publishing and the situation may – and is likely to – change in the future. If you’d like to receive follow-ups to the above analysis, we invite you to sign up to our gold newsletter. You’ll receive our articles for free and if you don’t like them, you can unsubscribe in just a few seconds. Sign up today.

Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

Sunshine Profits - Effective Investments through Diligence and Care

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All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.