Goldman Sachs published a note that’s bullish on gold price yesterday and expected it to outperform over the coming months. It’s forecasting four Fed hikes this year, which is one more than FOMC’s own projection. And the bank admitted that its upbeat view on gold is “counter-intuitive”.
However, the report pointed to empirical data for the past six tightening cycles of Fed, and found gold has “outperformed post rate hikes four times”. And according to their analysts, “the dislocation between the gold prices and US rates is here to stay”.
It added that the bullish view was also driven by higher inflation, rising EM wealth and increased risk of equity correction. Also, it’s a likely a function of investors “waiting on the sidelines” and the becoming interested in Gold again once the tightening “catalyst” has passed.
Our technical view
From our technical view, gold’s recent jump from 1307.32 suggests that consolidation pattern from 1366.05 has completed. And, rise from 1236.66, and the larger choppy up trend, is ready to resume. Based on the near term pattern, Gold will likely target 100% projection of 1236.66 to 1266.05 from 1307.32 at 1436.07.
However, bear in mind that gold is now close to an important long term fibonacci level. That is, 38.2% retracement of 1920.94 to 1046.54 at 1380.56. Gold failed this fibonacci resistance once back in 2016. And felt heavy approaching it twice since then. Add that to the fact that rise from 1122.81 is clearly not impulsive looking. For now, we’d be skeptical on gold bullish momentum ahead. And 61.8% projection of 1236.66 to 1266.05 from 1307.32 at 1386.88 is the hurdle to overcome.
