Analyst Points To These Unprecedented Levels For The Gold Price!

Since the gold price hit an all-time high of $2,089 in August 2020, the safe-haven metal has endured a long and healthy correction of big gains, according to mining industry investor and market analyst David Erfle. After the price of bullion doubled from a low of $1,045 in late 2015 to $2,089 last August, the analyst notes that this necessary consolidation process has been taking place over the past eighteen months. David Erfle’s market comments and analyzes in his own words cryptocoin.com We have prepared for our readers.

Will the FOMC be met with a ‘sell the rumor, buy the news’ response?

In 2021, the price of gold averaged $1,799, rising from $1,770 in 2020 to $29 despite losing 3.5% over the course of twelve months. The $1,800 key area has been a magnet for gold. Since mid-2021, any progress the safe-haven metal has made has quickly been exhausted and it has returned to the $1,800 region.

However, during a series of false moves that disappointed investors in both directions, investors have fallen asleep with gold’s price action in one of the tightest ranges in recent years. The result was what the technicians called a ‘winding action’, which would likely result in a sharp move in either direction.

The tighter and longer the trades are around $1,800, the more obvious the eventual move will be, whether up or down. Recently, this expected strong move has been trending upwards.

Gold sales have been muted since the Federal Reserve began tightening its monetary policy by shrinking its $120 billion monthly QE (quantitative easing) program in November 2021. The Fed is poised to end the reduction in bond purchases by March, paving the way for rate hikes.

When these hawkish actions by the Fed were met with a ‘sell the rumor, buy the news’ reaction in the gold market following the FOMC policy meeting in mid-December, the moves below $1,800 were quickly exhausted by the gold bounce above this crucial level.

“Gold is trending up but not close to overbought on daily or weekly chart”

The gold price has continued its upward trend since Fed Chairman Jerome Powell’s statements before the congress on January 11th. Yet the Federal Reserve is getting the ‘fruit bowl’ as QE is expected to expire in March. Three, and possibly four, rate hikes are projected for 2022, and even some Fed officials seem to be heading for an initial 50 percentage point hike in March. Uncertainty over how the Fed will unpack its tightening at its FOMC policy meeting next week has put US stocks back on track for the worst January since 2009 and 2016, both of which set off strong gains for the price of gold.

In fact, the gold complex began rising sharply on Wednesday when the CME FedWatch Tool was priced with a 99% chance for the first rate hike cycle in six years to kick off in March. Historically, the decision marked a major bottom in the gold complex when the Fed finally pulled the trigger to initiate a cycle of rate hikes. But the wild card of the gold price rising before the first rate hike took place was US President Joe Biden’s prediction on Wednesday that Russia would take action on Ukraine.

Gold Futures closed the initial resistance at $1,835 on the news, and bullion is currently above the upward sloping 50, 100 and 200-day moving averages, but not close to overbought on the daily or weekly chart.

Not only is gold now showing signs of exiting its 18-month consolidation, the safe-haven metal is also on a 3-month winning streak against Bitcoin and a 7-month high against the Nasdaq. Things were clearly worse for tech stocks and Nasdaq Composite as the index officially entered correction territory, down more than 10% since the record close on Nov.

“Cup, handle pattern reflects target of around $3,000 for gold price”

Also, despite the sharp rise of the US dollar, the price of silver started to show strong relative strength to gold this week and started to rise the day before on Tuesday. The gold/silver ratio appears to have double-top in the key 80-1 region and is falling rapidly, providing another bullish argument for gold consolidation to result in a sharp rise soon.

With the gold price currently targeting a weekly close above the $1,850 resistance, a monthly close above $1,900 would technically support the next rise in the second phase of a sustained gold bull market that began at the turn of the century. Looking at the bigger picture, gold has created a significant 12-year cup and handle pattern that will be completed once the $2,100 level is broken on a monthly closing basis.

There aren’t many examples of a multi-year cup-and-handle pattern in major markets, and traders should understand how bullish this pattern can be if it forms over an extended period of time.

The current cup and handle model underneath reflects the technically measured upward target of around $3,000.

Historically, the beginning of Federal Reserve rate hike cycles marked significant lows in gold prices in 1999, 2004, and 2015. Similar to the current situation in the gold complex, in late 2015, the Fed began bottoming out, six months before mining shares were announced in mid-December. Once the compression process began, the mining sector nearly tripled in just six months from a similarly low and accumulation timeframe that occurred recently.

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