Gold Has Lots Of Potential Downside

Over the past year, the price of gold has made repeated attempts to move higher. Looking at a one-year price history of GLD in the chart (source) below, there is  a series of progressively lower highs which seems to indicate staunch resistance to higher gold prices...

1 YEAR GLD

Before forming any opinions about what to expect for the next for gold, we need to look at some more charts with longer-term histories. Below is a two-year chart of GLD...

2 YEAR GLD

Here we can see that the series of progressively lower highs for gold (GLD) is almost sixteen months old. We can also see that there have been no credible attempts to break through the highs reached in August 2020.

Now lets look at a five-year chart (source) of physical gold prices...

5 YEAR GOLD PRICES (average monthly closing prices)

In this chart we can see that the past sixteen months of progressively lower prices appears to be a consolidation phase. The question, then, is whether gold prices are consolidating before moving higher - or moving lower.

The next chart is a ten-year history of gold prices...

10 YEAR GOLD PRICES 

After the lows for gold in late 2015, prices moved progressively higher until August 2020. If we connect the low in November 2015 with the low in September 2018 there is a line of support that currently comes in at $1375-$1400 oz.

If gold is simply marking time before a retracement back to that same line of support, then prices could fall significantly and still maintain the overall uptrend which began in November 2015.

There is a zone of support for gold prices between $1200 - $1400 oz. where it traded for six years between June 2013 and June 2019. If gold prices were to fall to that area, that zone of support should keep prices from falling much after that. Except...

Not everything is determined by technical factors. Since higher gold prices are a reflection of loss in purchasing power of the US dollar, then a period of relative strength for the dollar would translate to lower gold prices anyway. There are no other fundamentals for gold.

Also, once gold has caught up to the effects of previous inflation, it tends to just mark time. We seem to be in one of those periods now.

Unless the US dollar continues to lose purchasing power at accelerated rates over an extended period of time, don't expect higher gold prices. 

As far as gold is concerned, the only thing that will take its price higher is further lasting deterioration in actual purchasing power of the US dollar. 

In the meantime, gold prices could see considerable downside action. The $1375-$1400 area is a reasonable near-term possibility. (also see What's Next For Gold Is Always About The US Dollar)