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by Markus Buler, Euro on Sunday
B.Awesome! The price of gold was under significant pressure at the start of the week, even briefly dipping below the $1,900 mark on Tuesday. However, at $1,890, the Bears’ spring rush ended and a strong intraday swing ensued. From a technical standpoint, this has created a swing low. Confirmation is still pending. But such a swing low can represent a trend reversal signal on the chart technique.
Certainly many are writing off gold now that the stock markets are in demand again. However, correlations like “strong stock market = weak gold price” cannot be proven historically and mislead investors.
This shows the recent past. Analysts repeatedly state that the price of gold cannot go up when the dollar is strong. However, gold’s recent rally to all-time highs has been accompanied by a strong dollar. The dollar index hit a cyclical low around $89 in June 2020 and more recently rose above $99; During the same period, the price of gold jumped from around $1,880 to a peak of over $2,000.
A similar correlation that has been tried over and over again: “Gold can’t go up when US yields go up.” This statement is also proving to be unreliable, as the recent rally has shown. Yields on 10-year US bonds have doubled to around 2.5 percent from a low of 1.25 percent in August 2021. During the same period, the price of gold rose from $1,700 to around $1,950. This correlation has also been debunked for what it is: a myth.
Probability of a new all-time high
Correlations are misleading, even the most obvious ones. Gold is surrounded by some of those myths, few of which are strong. However, what does not lie is the graph. There are technical models running on a cyclical basis that have suggested a bottom for gold in early to mid April. The low at the end of March came too soon. However, such models have a certain temporal variation. The bulls have built a stronghold up to the breakout level of $1,840 which they will try to defend. The correction that was overdue after the previous rally should be coming to an end. In fact, Tuesday’s low may have already bottomed out. On the next rally, the bulls have an opportunity to break the all-time high.
Investors who want to play such a potential upside can do so with Xetra-Gold (WKN A0S 9GB) to do. ETC is legally equivalent to physical gold to a great extent.
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