- Summary:
- Gold price is rallying if you look at the right chart. Traders are now targeting the all time high above $1900 as evidenced by the 20-year chart
Gold price is down by about 0.40% today. As of this writing, the price is trading at $1,723, which is a few points below the yesterday’s high of $1,732. Yesterday, the price eked the first gain in three days after Jerome Powell warned about the risks to recovery. Other metals are mixed too, with nickel down by 0.15% and palladium and platinum down by 0.60% and 1.12% respectively.
Gold price waits for a catalyst
The price of gold has been relatively stagnant in the past few weeks. Since May 1, the price has oscillated between a low of $1,671 and a high of $1,765.
The performance has mostly been because of the mixed issues from the Federal Reserve and real demand in India. As we wrote a few days ago, gold demand in India has been on a downward trend and experts believe it will take time before it peaks.
At the same time, some of the leading gold jewellery companies have started focusing on recycled gold, which could affect the prices. There are also questions about whether central banks will continue buying gold as they did last year.
Gold price has also been affected by the Federal Reserve and other global central banks. Conventional wisdom says that gold price should jump when rates are low. In most cases, this is correct. However, low interest rates and the open-ended quantitative easing program have made investors rush from gold to high-yielding stocks. Indeed, in a time when gold price has been stagnant, global stocks have been in an upward trend.
But, as I will demonstrate below, gold price is still in an upward trend if you look at it with a long-term perspective.
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Gold technical outlook
If you look at the daily chart, you will see that gold price has been relatively stagnant. However, when you use a long-term chart, you find that the price of gold has been in a strong upward trend. As you can see below, the price reached an all-time high of about $1,900 in 2011. It then declined and reached a low of $1,061 in 2016.
This price was along the 50% Fibonacci retracement level. Since then, the price has been on a slow upward trend. At the current price of $1,722, the price is above the 23.6% retracement level and a few points below the previous high. Also, the price is forming a cup and handle pattern. This means that the price may continue rallying as bulls target the previous high.
On the flip side, a move below the 23.6% Fibonacci retracement level at $1,500 will invalidate this thesis.