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A golden decade lies ahead

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The start of a new decade sees Gold in US Dollar terms at 6 year highs. Geo-political tensions triggering a flight for safe haven assets such as the yellow metal. Even if this had not been the boost to the start of this year, there are many reasons why gold should do well, not only this year, but as an overall theme for the coming decade.

Weekly Gold chart in USD with 13 week moving average

The Chinese have a long term agenda to equal the gold to GDP ratio of that of the U.S. which means they will be in the market for some time looking for strategic opportunities to add to their gold holdings.

Gold top 10 holdings according to World Gold Council as of Nov 2019

The metal also has a dominance of two simple cycles on the daily chart derived from Fourier transform analysis in that there is a 171 vs 510 day cycle. When these two cycles meet (nest), there is typically a strong rebound reaction near that sine wave trough period, (see chart below), strangely this has worked very well to the recent moves..

Daily chart of Gold in USD with 510 vs 171 day cycles and Fibonacci swing extension projection levels.

With 2019 having been a honeymoon year for financial investors where stock indexes on average in main markets were up over 25% and bond markets produced all time lows in yields coupled with credit spreads to their tightest levels, this is not likely to be repeated going forwards. Valuations look overstretched on a P/E basis for stocks especially in the US and Gold has more appeal as a currency and not impacted as much by negative carry as it was now as bond yields are so low.

With the US Federal Reserve favoured to cut interest rates and provide a liquidity trap in the financial markets, yields for bonds are likely to be low, thus Gold is an attractive diversifier for professional investors.

Professional investors will also be looking to diversify portfolios to insure against any embers of inflation so in bond space moving from nominal bonds to inflation linked bonds, but gold in the past is also used as an inflation hedge.

Gold in 2019 was up over 18% from open to close and a touch more intra-year. Going forward targets are to $1,620/$1,655 initially, then $1,785, but from a longer term perspective all time highs past $1,920.6 are favoured to $2,680 within the coming years in this decade which is over 71% increase from current levels in USD terms. Support at $1,407 against any strong corrective activity in coming months.


 

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