Quantitative Easing

Where does the gold go from here?

After briefly hitting highs above $2,000, it fell to $1,785 (-14%) following the strong sell-off in major US indices for most of April and May 2022.

Interpretation of the current consolidation in gold

My team and I view the recent lows in gold as similar to the April/May 2009 consolidation after the global financial crisis. It is also similar to the January 2013 consolidation before a prolonged 34% price decline took place – ending in December 2015.

The main difference between now and then is that the Federal Reserve is currently launching a new round of quantitative tightening (QT), raising rates, while fighting inflation. In the previous two examples, the Federal Reserve was aggressively engaging in quantitative easing, attempting to help the recovery of the US and global economies.

It seems to me that the underlying factors that drive the price of gold have changed dramatically. All it would take for gold to enter a new trend, up or down, would be to see a new catalyst or contagion event come to life.

Gold establishes a new base of momentum, while the USD rebounded 15.75%

Gold’s strength over the past 15 months while battling gold’s strength has been impressive. I’ve shared my thoughts in numerous interviews over the past year, suggesting that gold is in a consolidation (falling) range, while still holding up impressively as the US dollar continues to rise. sharply.

I believe the trends in the US dollar and gold are directly related to underlying global economic factors. These factors are prompting a move away from traditional growth sectors and causing traders to reconsider the safety of precious metals. Another factor is that the Federal Reserve has been actively telegraphing rate increases for nearly 12+ months as inflation began to rise in early 2021.

I see gold’s prolonged consolidation over the past 15 months above $1,700 as a new momentum base for the price – similar to what happened in 2009 and 2013. The question next is “will it break up or down?”

UUP chart.

Over time, we’ll have to see how the dollar and gold react to the long-term resistance zone I’ve highlighted on the chart above.

Plan A vs. Plan B for gold throughout 2022

I like to consider trading to capture high probability opportunities in confirmed/defined trends. The smartest move for gold traders right now is to wait for any future price confirmation before trying to guess which direction it will move.

Plan A

Watch the $1,775 level as critical support

Consider the current price uptrend neutral if a daily close breaks below $1,775

If the price rallies above $1,775 after falling, adjust to a potential uptrend in gold prices

Plan B

Watch the $1,735 level as critical support

Consider the current uptrend to continue lower if a daily close crosses below $1,680

If the price falls below $1,735, don’t try to “pick the low”

These Plan A and Plan B constructs are my way of thinking about trading in general. It’s not worth trying to guess where the price may go or if I miss an opportunity. Risking 5% or 10% of my capital on a guess just isn’t worth it to me. I can get my guess wrong many times trying to dismiss an emotional belief that a low or a high is taking place. This, in turn, could destroy 25%-40% of my trading capital in the process.

If I am patient and wait for the market price to confirm a trend, then I can execute a high probability trade with limited risk.

Go back to long-term technical analysis as a guide

I created this chart in early 2021 highlighting my cycle expectations for gold over the next 3 years. For most of 2021 and early 2022, I expected gold to trend lower – reaching a low price near $1625 around Feb-May 2022. Gold’s recent low the May 16, 2022 was $1,785. Prior to that, gold hit a low of $1,676.70 on March 8, 2021.

Although my level of $1,625 has yet to be reached, I am looking forward to the next phase of my prediction – the potential rally wave which is expected to begin in June 2022 or soon after. This next phase of the rally may target $2,000 to $2,050 and then stagnate for several months before continuing higher, targeting $2,400 and higher.

Long term gold chart.

Patience is the key to all trading and long-term success. Knowing that there are opportunities for very short-term trades every day is fantastic if that’s your style. I prefer to trade longer term swing trades, protecting my capital and trading the most efficient setups.

In my opinion, the best opportunity for gold traders is to wait for price confirmation of my predicted cycles. Once that happens, look for opportunities when we know gold has come out of this consolidation phase.