Golden Way Business News Release #6

07.09.2021

In May 2021, consumers from China showed great demand for gold due to the beginning of the holiday and wedding season. Still, the escalation of the COVID-19 pandemic disrupted purchasing in India - one of the major global markets.

The gold price remaining below $1,800 per ounce indicates a “lack of an immediate impetus to buy the yellow metal, as the Fed clarified its reaction function with respect to an upside scenario in inflation, which suggests the Fed isn't behind the curve by any means.”

According to our forecast, in 2021, there should be a rise in the rate of gold, but not above $2,000 per ounce. The following factors will facilitate this:

  • The increase in inflationary expectations and the weakening of the US currency will result from generous fiscal and monetary stimulus.
  • An increase in investment demand and a gradual recovery in consumer demand in China and India will support the precious metal rate at a high level.
  • Government bonds (government debt) will not play the role of defensive assets in the face of inflation and negative interest rates since they will cease to generate income.

At the same time, the opportunity cost of owning gold decreases. This will increase the popularity of the precious metal in the eyes of investors in 2021.

All Western countries are experiencing unprecedented growth in the money supply. From the beginning of February to the end of October, the aggregate volume of money supply in the United States increased from $15.4 billion to $18.8 billion, an increase of 22%. In the United States, the Eurozone, the United Kingdom, and Japan, the figure rose 15.7% from February to September 2020. Consequently, the risk of higher inflation in 2021 is very high.

Gold Technical Analysis

To do a high-quality technical analysis of the XAUUSD, we'll analyze its monthly chart first.

As shown in the gold price chart above, the XAUUSD has been in a global bullish trend since 2001. Laying the Fibonacci grid over the gold price pattern, we'll see some development stages of the gold trend's lifespan. I've marked five of them in the chart above:

  • 1 — Area of peak values: the red zone going from 2.618 to 3.618 as per Fibonacci ratios. The price hasn’t remained in that area for long as the market is overbought.
  • 2 — Area of dynamic development: the blue zone going from 1.618 to 2.618. The gold price is highly volatile there and can fluctuate rapidly.
  • Areas 3 and 4 are price consolidation zones. Strong support/resistance levels are near the limits of those areas, and much effort is required to break them through.
  • 5 — Area of the buyers' last hope. If the price is here, a bullish trend is likely to end soon. However, the limits of that area can provide support to the buyers and result in pullbacks.

The XAU price is currently consolidating in the area of dynamic development, which may indicate that the trend development stages shifted up by one stage. Thus, a projected correction is unlikely to go below the limits of Area 3, below 1400 - 1500 USD per ounce

Gold Forecast For Next Three Months

I've done a similar technical analysis of gold quotes using Fibo channels on the weekly chart to make a forecast for the next three months.

I've marked five areas on the XAUUSD's weekly price chart for a local bullish trend that has been developing since the end of 2018. The price is in the consolidation area, close to the ultimate fifth level, whose lower limit coincides with Area 2 of the global trend.

As the chart above suggests, the current gold price is moving within a descending triangle, confirming that the global area 2 turned into a consolidation zone. Gold's future price will most likely continue fluctuating within that triangle, in the range of 1680 - 1830 US dollars. A fall in trading volumes and the MACD's cascading bullish divergences support the idea of the price's consolidation on the current levels.

Long-Term Gold Analysis for 2021/2022

To estimate gold's potential in the coming years, we need to understand the direction in which the XAUUSD will go upon the triangle's completion. The price history analysis of various instruments in similar conditions points to a likelier breakout to the upside. Once the triangle's upper edge is broken, the price target will be located on the limits of the second global area, at around 1950 - 2000 USD. Next, there can be a small pullback, but if the buyer is strong enough, the price may break through the limits between area 1 and 2, reach the previous historical maximum at 2074 USD, and even update it. The next target will then be the level of 2350 US dollars.

The chart above shows the range of XAUUSD price fluctuations for each month based on the realistic gold forecast I've made. I've calculated the expected trading range using Bollinger bands. 

Long-term trading plan for GOLD

To finalize our XAUUSD technical analysis, We suggest making a trading plan for exploiting projected growth in the range of area 2.

We've marked two long trades with blue lines in the chart above. The first one can be opened at the current price, at around 1745 USD. The second one is in the buyers' activity zone, at 1690 USD. Calculate each position's volume in a way that excludes losing more than 3% of the deposit when Stop-loss at 1575 USD is triggered. According to that trading plan, profits should be fixed in two areas as well: the first half of your position in gold can be closed at the projected price of 1820 USD. The rest of gold can be sold at 1905 USD. Then, if we are lucky to have a pullback to the previous levels, the trading plan can be repeated.