Gold Analysis and Price Trend Forecast for 2010
Gold, stocks, and the dollar have been showing strength. Weren't we told repeatedly that this couldn't happen?
Gold Bull Market Forecast 2010 -- (November 1, 2009)
Gold has had a stellar run of late, which recently saw it pushing to new all-time highs on a near-daily basis. This has galvanized wider mainstream press attention to the precious metal with many gold bugs revising targets ever higher into loftier goals such as $2,000 and even $4,000-plus. Gold is one of the most popular asset classes both sought after by readers and written about by market commentators, and one of the most emailed queries as to when I'll update my original gold analysis of January 22, 2009 which concluded during mid-2009; therefore this analysis seeks to project the gold price trend well into 2010.
Gold Price Forecast 2009 Evaluation
My original analysis for gold as of January 22 concluded with a gold price trend higher into March 2009 toward a target of $960 to be followed by a subsequent decline into mid-2009 as illustrated by the original forecast graph below.
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The gold price forecast proved to be accurate in terms of the projected impulse waves. This analysis seeks to project gold forward several months into 2010.
Fundamentals -- Inflation Driving Gold?
The problem with this scenario is that the inflation of the 1980s and 1990s did not drive gold higher, so clearly the mantra of inflation driving gold higher isn't correct -- especially as we're presently emerged in debt deleveraging deflation. Discounting future inflation expectations doesn't hold up either, as the gold bull market is now into its tenth year with a gain of 400% to date.
Gold Secular Bull Market
From 1980 to 1999, gold fell for 20 years; eventually it would bottom and embark on a bull market. The signs for this wouldn't be in fundamental data, but contained within the price chart as gold breaks the pattern of corrective rallies followed by the downtrend resuming to new bear market lows. Now some nine years later, gold has corrected the preceding secular bear market by 50% in time and 100% in price. Therefore gold isn't in a new bull market -- which has already contained many vicious bear markets within it, as we witnessed last October. So keep in mind that this isn't a fresh young bull market, and therefore, much of the talk about waiting for public participation can be discounted.
US Dollar/Credit Crisis
My earlier analysis of a positive trend for the USD clearly implies given the inter-market relationship between a two for a weaker trend for gold. However the risk is that amidst the next phase of the global financial crisis, as the bankrupt banks have far from recovered, the next stage of the banking crisis accompanied by recognized inflationary panic measures of money-printing (which devalues all fiat currencies) could give a lift to gold.
Quantitative Easing aka Money-Printing Hedging
We're in a new world (in the West, anyway) and it's a world of quantitative easing; the more the governments of the world print money and monetize debt, the easier it is for governments to keep printing and monetizing ever-escalating amounts of government debt to cover the government budget deficit gap. What this means is collective currency devaluation where, relatively speaking, there appears to be little change. But in real terms, the flood of money has to be seen in rising commodity prices and other scarce resources; after all, the supply of resources is mostly known and the population of the world isn't decreasing, so the demand is known to be on an upward curve. Therefore as long as the central bankers are embarked on the experiment of quantitative easing, that should give a lift to gold and other commodities as it increases inflation expectations and consequently inflation hedging using gold and more liquid commodities (such as crude oil).
Gold Technical Analysis
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Elliott Wave Theory: The Elliott wave pattern implies we're a strong bull market that has much further to run, i.e. in Wave 4 of a larger Wave 2 advance. This also suggests that the immediate future should see further weakness in gold towards $1,000. However, this is just a correction in the trend that projects to a price of more than $1,100 by the end of this year, with the trend continuing into March 2010 toward $1,200 before a more serious correction takes place.
Trend Analysis: Gold's breakout to a new all-time high is a clear signal of further strong advances. The support trendline is at $1,000 and therefore fits in nicely with the Elliott wave correction projection target. After the uptrend resumes, this trendline is unlikely to be revisited until the second quarter of 2010.
Support/Resistance: Resistance lies at the last high of $1,071; immediate support lies across the string of previous highs of $1,033 and $1,007, therefore there's very heavy support whilst very light resistance overhead, which again is suggestive of a mild correction in the current phase of the trend.
Price Targets: The measuring move off of the $681 2008 low projects all the way to $1,350, which looks set to be an achievable price during 2010. Nearer-term immediate targets extend to $1,100 then $1,200.
MACD: The MACD indicator signaled a gold breakout at $960, with a firm established uptrend. The current correction is inline with that of a mild correction within a strong uptrend.
Seasonal Trend: There's a strong seasonal tendency for gold to rally from November through January, i.e. for the next three months. This is suggestive that the current correction is living on borrowed time and may not last much longer.
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