Daily Market Recap – GOLD Will gold prices finally surge?

Gold and silver saw strong swings this week as the precious metals benefited from growing concerns about inflation and negative real yields.

Friday's pullback is reflected in gold's inability to hold above $1,800, as well as news of a Bitcoin futures ETF launch that could take place next week.

The yellow metal, which has always been seen as a hedge against inflation, got a boost Wednesday after the release of a 5.4% year-over-year increase in consumer prices (CPI) last month in the United States.

Some investors see gold as a hedge against rising prices that erode the value of currencies. Yet higher inflation calls for tighter monetary policy by central banks, which should mean higher yields. Nevertheless, higher yields are generally bad news for gold.

As inflation continues to build in the economy, the chart below shows the incredible relationship between gold prices and the CPI since the global financial crisis.

The yellow metal rose more than 75% from August 2018 to August 2020, hitting all-time highs during that period. Then, with CPI around 1%, few investors expected inflation to be a risk to the economy.

We are now on a higher-than-expected peak (5.4%). Gold looks fundamentally cheap but oversold as inflation continues to gain ground. As a result, we believe that the historical relationship between precious metals and consumer price inflation will continue to be strong.

From a technical perspective, gold prices attempted to break through the resistance zone around $1,785 / $1,795 coupled with the 200-period moving average this week. In the medium term, prices are moving within a bearish channel, so a break of the upper bound would be a technical signal for bullish recovery.

The support levels to attempt to buy cheaply are clearly identified. They are located at $1,750, $1,725, and around $1,685. A pullback to these levels would not be out of the question before a strong recovery. Buyers should therefore wait to position themselves along the intersection between the $1,750 support and the bullish oblique from March/ August lows.

Assuming that buyers will show up and manage to break out of the top of the channel, then a bullish restart should take place in the gold price. Finally, the key pivot point for triggering a new wave of bullishness is $1,830.

 (Chart Source: Tradingview 17.10.2021)

To sum up, the yellow metal has not said its last word, the asset could very quickly return to the forefront and catch up in the coming weeks.

Support & Resistance Levels:

R3       1,917

R2       1,830

R1       1,800

S1        1,750

S2        1,725

S3        1,685

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.