Gold: Once More On To The Bridge, Dear Friends, Once More! (NYSEARCA:GLD)

Fundamentals

The fixed income markets predict rate cuts as almost certain later this year, reflecting a disagreement on the chances of a U.S. recession. While the Fed does not see a recession in their current economic assessment, early signals suggest the U.S. economy could be weakening, and risks from the recent banking crisis could resurface. Both the Fed and markets agree that we are close to the top of the interest rate cycle, but differ on the trajectory for rates. Ultimately, economic data on inflation and employment will determine the direction of rates in 2023.

The central bank’s mission to fight inflation became more challenging in recent weeks as they had to balance a potential financial crisis with high inflation and a tight labor market. The recent banking chaos has raised fears that the central bank could overcorrect the economy into a recession, trigger more bank failures, or undermine the value of Treasuries and other securities. Nonetheless, the policymakers decided to hike rates for the ninth consecutive time to restore price stability.

Gold and interest rates are often inversely correlated. When interest rates rise, the opportunity cost of holding gold increases, as gold doesn’t pay any interest or dividends. This often leads to a decrease in demand for gold, and its price may fall. On the other hand, when interest rates decrease, the opportunity cost of holding gold decreases, and its demand and price may increase.

However, this relationship is not always straightforward and can be influenced by other factors such as inflation, economic growth, and geopolitical risks. In times of high inflation or economic uncertainty, investors may turn to gold as a safe haven asset, regardless of interest rates. Additionally, gold is often seen as a hedge against currency fluctuations, and as such, its demand and price may increase during times of currency depreciation, even if interest rates are rising.

Overall, while there is a general tendency for gold and interest rates to have an inverse relationship, the relationship between the two can be complex and is influenced by a variety of factors.

Gold Standard Deviation

Let’s examine my report published April 16, 2023, in the Premium section of Seeking Alpha, in which the 360-day Seasonal top was identified. In that report, we said “The extreme level number 1 and 2 of standard deviation is 1,896 – 2,093. We can clearly see that the low on Sep. 28, 2023 was 1,656.80, and we made the recent high on April 12, 2023, at 2,063.4 per oz. With the first target of 1,895 completed and the recent high, it increases the probability the 360-day cycle top target range has been completed.”

I also said, “As we take a look at the 30-day cycle and standard deviation patterns starting April 1, 2023, we can identify the average price or mean at 1,949. The extreme sell level number 1 and 2 of standard deviation is 2,069 – 2,151.

“We can clearly see that the low on April 3, 2023, was 1,865.9, and we made the recent high on April 12, 2023, at 2,063.4 per oz. With the first target range of 2,069, it satisfied the pattern and with the recent high, increases the probability the 30-day cycle top target range has been completed.”

The weekly price indicator also recommended, “To maximize profits, traders should look to take profits on shorts into corrections at the Buy 1 and 2 levels of 1,988 – 1,959 and go long on a weekly reversal stop. If long, use the 1,959 level as a Stop Close Only and Good Till Cancelled order. Look to take profits on longs as we reach the Sell 1 and 2 levels of 2,054 – 2,091 during the week.

Summary

The gold market last week made a high of 2028 and a low of 1980.9 completing the downside target and extreme standard deviation Buy level 1 of 1988 and a reversion unfolded activating a buy signal.

Let’s take a look at the Weekly Standard Deviation published in the Mean Reversion section and see what the numbers tell us for next week.

GOLD: Weekly Standard Deviation Report

Apr. 22, 2023 1:44 PM ET

Summary

• The weekly trend momentum of 1956 is bullish.
• The weekly VC PMI of 2000 is bullish price momentum.
• A close below 2000 stop, negates this bullishness neutral.
• If short, take profits 1972 – 1953., If long, take profits 2019 – 2047.
• Next cycle due date is 5/15/23.

Weekly Trend Momentum

The gold futures contract closed at 1991 last week, indicating a bullish short-term trend momentum, as the market closed above the 9-day SMA at 1956. This confirms the weekly trend momentum to be bullish. However, a close below the 9 SMA would negate the bullish short-term trend, leading to a neutral market outlook.

Traders should keep an eye on the 9 SMA to determine the short-term trend of the gold futures contract. If the market remains above the 9 SMA, traders can expect a bullish trend to continue. On the other hand, if the market closes below the 9 SMA, traders should consider taking a neutral stance until further confirmation of the market trend.

Weekly Price Momentum

The gold futures contract closed below the VC Weekly Price Momentum Indicator at 2000, indicating a bearish short-term trend momentum. This confirms that the price momentum is bearish for the week. However, a close above the VC PMI would negate the bearish short-term trend, leading to a neutral market outlook.

Traders should keep an eye on the VC PMI to determine the short-term trend of the gold futures contract. If the market closes above the VC PMI, traders can expect a bullish trend to continue. On the other hand, if the market remains below the VC PMI, traders should consider taking a bearish stance until further confirmation of the market trend.

Weekly Price Indicator

Traders should look to take profits on shorts into corrections at the Buy 1 and 2 levels of 1972 – 1953 and go long on a weekly reversal stop. If long, they should use the 1953 level as a Stop Close Only and Good Till Cancelled order. Traders should also look to take profits on longs as we reach the Sell 1 and 2 levels of 2019 – 2047 during the week.

Cycle and Strategy

The next cycle due date for the gold futures contract is 5.15.23. Traders should consider taking profits at the Buy 1 and 2 levels of 1972 – 1953 if they have a short position. If they have a long position, they should consider taking profits at the Sell 1 and 2 levels of 2019 – 2047.

Overall, traders should monitor the short-term trend of the market using the 9 SMA and the VC PMI. They should take profits at key levels and consider going long or short depending on the weekly reversal stop.

Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any futures or options contracts. It is for educational purposes only.

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