Many think of gold as a commodity. I think of it as an anchor to money or what money should be.
Whatever it is, it is an early bird. In 2001 it ended a secular bear market and started a bull market that would later go on to include commodities and stocks. In 2008 it dropped, leading the entire macro to a crash, from which gold recovered first after its ‘real’ price as measured by commodities actually skyrocketed during the crash. In 2020 gold recovered first, along with certain ‘stay at home tech’ and led the whole damn inflated boat full of ‘inflation trades’.
Today it is doing what it is supposed to do if we are going to end or severely disrupt the inflation trades. The handle breakout from a big picture Cup happened at 1920 and as we projected, that would be the first support area on a coming pullback. It tested that, rose anew and is now dropping again to test the daily SMA 50. Our next projections are the November high at 1873 and the zone where the SMA 200 (1818) is rising to meet support in the 1828-1835 area.
Gold bug confidence must always be cleaned when it gets too vigorous. They have been all over Twitter (and I assume plenty of other venues) lecturing the masses, especially about inflation. That would be the same inflation that we have shown to be at risk of failure (with several negative indicator divergences, not to mention long-term yields at a potential limit area).
I will stick with the view that gold will be about surviving the failure of the inflation (although it would also be of value if the inflation morphs to von Mises crack-up hellflationary), but first it has to lead the inflation bugs down (and out). This monthly chart shows the breakout from the Cup’s handle and the fully expected pullback to test it. As the dotted black line on the chart above shows such a pullback would bring gold right to the support targets noted.
Nothing is ever a given the markets, but such a test, if successful, would be the confirmation of the next bull leg and possibly – depending on the macro – for gold stocks to rise in a new bull market cycle. Meanwhile, we have been fully prepared for some shorter-term pain for the precious metals. When the over confidence of the leader bugs is dampened the time will probably be right.
As a side note, insofar as the stock market remains bullish on its recovery rally I’d favor non-inflation trades like Tech, Semi, Healthcare, etc. over commodities, which have been very bullish and very at risk.