Since the low on February 14th at USD 1,985, the price of gold has increased significantly by around 22.5% in the last two and a half months. The high of the breakout rally so far was seen on Friday, April 12th with prices around $2,431. There was then a sharp reversal and a price slide to USD 2,334 late in the afternoon on the same day. Although the bulls were able to push the gold price just above USD 2,400 in the following trading week, they missed the all-time high of USD 2,416.
At the beginning of the last trading week, profit-taking caused a significant price slide and lows of around USD 2,291 on Tuesday morning. By the end of the week, the prices were able to recover slowly, but at least to a high of USD 2,352. The gold price thus managed to stabilize for the first time above the psychological mark of USD 2,300 “after the slap”. However, the recently very bullish picture is now tarnished.
In the big picture, the price of gold rose from its last panic low point on October 6, 2023 at USD 1,810 at a peak of USD 621 or 34.3% per troy ounce within around six months. The breakout rally above the resistance around USD 2,075, which we anticipated and announced in good time, has now manifested itself. However, our price target of USD 2,535 has so far been missed by almost USD 100.
With increasing reversal signals, the probabilities have increased that gold has reached the high of its upward move at $2,431 and is now already in correction back to the breakout level in the $2,100 area.
Of course, the tense geopolitical situation could cause a new increase at any time. The slightly oversold chart technology and a possible consolidation triangle at a high level also favor a continuation of the recovery and also allow for the chance of a continuation of the rally.
Nevertheless, it is now important to be very careful and vigilant, because from a seasonal perspective, after a strong rally, the price of gold usually finds an important high point in the spring between March and May and then corrects at least until mid-summer.
2. Weekly chart: Weekly stochastics still very bullishly embedded
Gold in US dollars, weekly chart as of April 29, 2024. Source: Tradingview
On the weekly chart, at the end of February, after numerous attempts, the gold price finally broke clearly and sustainably above the strong resistance zone around USD 2,075. This break-out caused a sharp rally and catapulted gold prices almost vertically to a new all-time high of USD 2,431 in just a few weeks.
We derived our price target for this breakout rally at $2,535 from the inverted head-and-shoulders formation. This classic pattern had plagued the gold market for three and a half years since the summer of 2020 and caused a difficult correction between $2,075 and $1,615. In retrospect, we might have been better off setting the neckline of this formation a little lower in the area around $2,025 and not exactly at the price peaks at $2,075, because then our price target would have ended up closer to the previous high of $2,431.
In the big picture, however, this mark is probably only a temporary new all-time high. As long as the gold price does not break out upwards soon, the new all-time high could remain unattained in the coming months or until August.
Overall, the weekly chart is still bullish, but the reversal signals are increasing slightly. The rally could only continue if a weekly closing price above USD 2,380 is achieved. Otherwise, the correction on the gold market will probably expand gradually in the coming weeks and will only find its low in the area between USD 2,075 and USD 2,150.
2.2.1Daily chart: Slightly oversold situation favors recovery
Gold in US dollars, daily chart from April 29, 2024. Source: Tradingview
On the daily chart it is easier to see that the gold market has seen the first series of lower highs and lower lows in the last two weeks. This defines a small downward trend. Nevertheless, as part of a prolonged top formation, the gold price could continue to let off steam and recover for some time in the area between USD 2,300 and 2,400.
Likewise, the price action since April 12th could simply be a consolidation in the form of a bullish triangle or a bullish flag at a high level. Only a deeper low well below USD 2,180 would confirm that the bears have actually taken control of the gold market.
In view of the already slightly oversold daily stochastics and the resulting increasing probability of a continuation of the countermovement or recovery that has already begun, it could well take another one to three weeks until the conditions on the gold market become clearer again.
Even if the bulls initially managed to stabilize above USD 2,300, a rise above USD 2,380 would still be necessary to breathe new life into the interrupted rally.
Overall, the daily chart is slightly bearish. The gap to the 200-day line ($2,032) is considerable and suggests there is a lot of need for correction. An interim recovery could delay the continuation of the correction, but the chances of the rally continuing below USD 2,380 remain manageable. However, prices above USD 2,400 would be a clear signal for a victory lap and new all-time highs.
3. According to Commitments of Traders Report for the Gold Future dated April 29, 2024. Source: Sentimenttrader
At the shooting price of $2,322, commercial traders held a cumulative short position of 226,872 gold futures contracts on April 23. Given the rapid price increase over the last two months, this positioning appears surprisingly moderate. Nevertheless, the bottom line remains a clearly bearish positioning.
Overall, the current CoT report is negative and opposes rising prices.
4. Sentiment Optix for Gold as of April 29, 2024. Source: Sentimenttrader
With a value of 67, the sentiment index for the gold market has almost reached its extreme zone. However, there is currently still some room for excessive optimism. Normally, strong upward movements in the gold market always end in euphoria and blind greed. This is not the case so far! Nevertheless, the mood barometer sends a warning signal.
The sentiment on the gold market is now too optimistic. However, there is no sign of any exaggerated euphoria (yet)
5. Seasonality for the gold price over the last 12 years as of October 9, 2023. Source: Seasonax
Statistically speaking, the seasonally favorable phase for the gold price ends between the end of February and the beginning of May. From this perspective, the gold bulls don't have much time left to mount a final exaggeration.
The longer the gold price trades below the recently reached high point of $2,431, the more likely it is that the classic spring top was already seen on April 12th and that the gold price is now likely to correct into June and July.
Based on the last 54 years, the seasonal component is negative over the next three months.
6. Macro Update – The crack-up boom needs to blow off some hot air
We already communicated clearly around 4 years ago that the financial markets would enter a crack-up boom because central banks around the world initiated a massive expansion of the money supply in connection with the Covid crisis. At the time, we were one of the few who correctly predicted this development and were repeatedly asked by many for a basic explanation of the crack-up boom.
In the last few days and weeks, however, we have noticed that significantly more analysts are now talking about the crack-up boom almost as a matter of course. Even if the crack-up boom realization has not yet necessarily become mainstream, it seems to have reached the consciousness of a somewhat broader group of investors thanks to the strong price increases in stocks, Bitcoin and precious metals. However, as the market always seeks the path of surprise rather than consensus, from a sentiment perspective we see some warning signs in the short to medium term that suggest at least a temporary pause in the ongoing crack-up boom.
Due to the extremely difficult and highly complex situation, the Federal Reserve in America could possibly lose control, at least temporarily, to the surprise of the markets. Despite the continued high and stubborn inflation, the Fed could soon be forced to lower interest rates in order to stabilize the markets again. For example, last week, another US regional bank, Republic First Bancorp, went bankrupt.
At the same time, the currency crisis in Japan continues to escalate, as the currency of what was previously the third largest economy in the world has lost almost 65% of its value in less than 3 years. The weak yen supports the extremely important “carry trade”, which is one of the most important supports for the speculative bubble on the western financial markets. How long the Japanese central bank will be able to stoically accept the constant impoverishment of the population due to currency devaluation is extremely questionable.
The tensions in the financial system continue to grow in the background. At the same time, there are constantly new geopolitical trouble spots and military conflicts, all of which can in principle be traced back to the third world war between the USA and China, which was not openly carried out.
Chinese gold purchases. Source: Steno Research, Bloomberg & Macrobond
China has been responding to increasing tensions between East and West with heavy gold purchases for years
Chinese gold trade explodes. Source: Bloomberg & FT
With the plans to introduce the Shanghai Gold Exchange, physical trading initially increased gradually. Since the summer of 2019 and the then US repro crisis, the next boost came, which was followed by the official opening of the gold exchange in October 2022. And since February 2024, trading activity has gone through the roof. Overall, the Chinese Renmibi has depreciated by around 45% against gold in the last 24 months. At the same time, this has triggered an incredible buying spree in China, which has now put a checkmate on the Western paper gold trade.
In the West, on the other hand, the increasing war economy is causing high arms spending, which is channeled past the population and directly into the arms industry through fiscal stimulation in a way that has never been seen before. The booming arms business keeps the economy busy and inflation rates high, but at the same time causes great injustice among the population. Cutting interest rates would only accelerate this divide, because those who hold assets such as stocks, real estate, physical precious metals and Bitcoin can profit from inflation and even increase their wealth. However, if you don't have it and depend on monthly salary payments, you have no chance of combating inflation.
And this is exactly where the Fed's problem lies. If it stimulates it too early, the crack-up boom will escalate; if it waits too long, it risks a deflationary implosion. The thin line of believing you can actually manage the complex situation has always led to loss of control and crashes in the past.
With a view to the financial markets and the search for the right strategy for the coming months, we would currently approach the difficult puzzle in a very banal and simple way. The good old stock market adage “Sell in May and go away” probably gives us the best advice in this complex situation. Given the strong price increases in almost all asset classes, you no longer need to be aggressively positioned and fully invested from spring onwards. Maybe you'll miss a few percent on the upside, but by autumn there should certainly be at least a little bit of a breather on the markets. If there is a major setback or even a crash, an increased liquidity rate will put you in the ideal position to be able to collect the bargains in the fall.
7. Conclusion: Gold triangle suggests that the rally will continue
Mining Stocks / Gold Ratio, as of April 25, 2024. Source: Tavi Costa
All in all, we are honestly a bit conflicted about our considerations at the moment. On the one hand, there are numerous signals for a reversal and thus a short-term trend reversal on the gold market. On the other hand, we are still missing a clear exaggeration of the silver price on the home stretch. In addition, the large mining stocks, which have so far clearly lagged behind the strong gold price, only seem to have gained some momentum in the last two weeks.
If the stock markets can hold up reasonably well until later in May, there would actually be no reason why the gold price could actually achieve another, higher high. This would mean that the final low of the setback could be found in the area of the lower Bollinger Band on the daily chart around around USD 2,280 in the next few days. It is possible that the low of USD 2,291 has already been seen and the gold price is consolidating within the triangle shown.
The next step would be to expect the final exaggeration of the upward wave that began in October of last year. If the gold price can actually take another victory lap, then our price target in the area around USD 2,535 would be extremely realistic. Even higher prices could possibly be possible in the next two months. Likewise, the price of silver would then have to really go through the roof and rise to around 35 USD.
However, if this does not happen because, for example, the stock markets have already tanked, the precious metals sector will probably also come under pressure due to profit-taking and reallocations due to margin calls. Then the top at $2,431 would have been seen on Friday a week ago and we would now be in the typical spring correction, which should normally last around six to eight weeks or maybe a little longer. In June or July, the price of gold could then attempt a temporary recovery towards around 2,300 to 2,400 USD, starting from a low point between around 2,075 and 2,150 USD.
This rather bearish short-term scenario would also mean that the next big upward movement could be pushed back quite a bit. It may only be in the fall, when there is a little more stress on the stock markets, that new rescue measures could initiate the next bull market.
In the big picture, the financial markets will continue to move upwards in the crack-up boom. We communicated this clearly almost 4 years ago and nothing has changed so far, despite the sometimes abnormal fluctuations and high volatility. But similar to a pressure cooker, the hot air or pressure must occasionally be released. This could start with profit-taking in the next few weeks and months and then lead to a somewhat more painful setback, especially for tech stocks that have been doing very well and for Bitcoin.
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