The “Cup and Handle” Pattern in Gold Price: These Levels Are Awaited!

The price of gold rose sharply on Wednesday evening as Russia attempted to invade Ukraine. Gold, the safe-haven metal, slid closer to the $1,975 region towards Comex trading on Thursday morning, as financial markets plunged into panic mode after news of a war that Western politicians had repeatedly warned of. But gold turned around $100 on Thursday afternoon, with overbought in the short-term priced in the Russian invasion that many had been waiting for. A precious metals investor and analyst, David Erfle’s market comments and gold analysis in his own words cryptocoin.com We have prepared for our readers.

“Gold investors should prepare for more volatility”

The recovery on Wall Street was the catalyst to push gold below the key $1,900 level that the safe-haven metal has consolidated since last Friday. Stocks reversed Thursday’s steep declines after US President Joe Biden imposed several aggressive international sanctions against Russian banks and state-owned companies. However, after the gold dust subsided on Thursday, its price had bounced back above the $1,900 level at the end of Comex trading.

However, with continued inflationary concerns as Russia’s occupation of Ukraine continues and the Federal Reserve embarks on a long-overdue cycle of rate hikes, precious metals investors should prepare for more volatility.

With the Fed falling far behind the inflation curve no matter what happens in Ukraine, Fed officials on Thursday agreed that inflation is too high and that interest rates should be raised at the FOMC meeting in March. On Friday morning, the US Department of Commerce announced that the core PCE price index rose 5.2% from 4.9% last month. Overall, the report showed headline PCE inflation rose to 0.6% in January, from 0.5% in December. Inflation for the year rose to 6.1%, up from 5.9% year-on-year in December.

Fed rate hikes could put additional pressure on the economy

Even though the Russian invasion of Ukraine has made the Fed’s monetary policy much more uncertain, the 150-175 basis point rate hike tightening continues to be priced in over the next 12 months. However, an initial 50 basis point hike is less likely. Time will tell if the current situation in Ukraine will cause the Fed to be less aggressive in raising interest rates. But even so, rising energy prices around the world indicate that inflationary pressures will continue to increase, which will further complicate the Fed’s job as the tightening process is expected to begin in a few weeks.

Inflation is now rising at levels not seen since the early 1980s, but there is a big difference between then and now. I’m old enough to remember the stagflation of the 1970s that lasted for most of that decade, raising the price of gold from $100 in 1975 to $850 by January 1980. It was a great time to invest in commodities that have risen sharply with interest rates, but are not good for stocks and bonds.

The Fed managed to raise rates by an incredible 20% in the late 1970s, finally putting the inflation genie back in the bottle by the late 1980s. While the Fed was able to raise interest rates significantly in the 1970s, it cannot this time due to unprecedented debt. The national debt of $30 trillion, 70% of which is in cumulative interest payments, currently stands at 125% of GDP. When Federal Reserve Chairman Paul Volcker raised the Fed Funds Rate to 20% in January 1980, the US national debt was $900 billion at just 34% of GDP.

If Fed funds rates rise above 150-175 basis points this time, it could risk a serious policy error and put additional pressure on the economy, which is the definition of stagflation, along with the already weak equity market.

“Gold created an important 12-year-old cup and handle model”

After gold doubled sharply from 2016 to 2020, the safe-haven metal entered a prolonged phase of pullback/consolidation to digest these oversize gains. Gold’s top-to-bottom correction ($2,089-$1,673) was 20%, a textbook correction to the .382 Fibonacci retracement level that was tested three times.

Since the last test of $1,675 in August 2021, we have seen a series of higher lows and higher highs along with critical overhead resistance in the $1,900 region. In last week’s message, I mentioned that we would need to see a monthly close above $1,900 for technical confirmation that gold’s 18-month consolidation is bullish.

After gold volatility increased significantly mid-week, some support remained at $1,880 and stronger support in the 1,850 region is where the war premium begins pricing out. With increased volatility, the daily upper Bollinger Band will rise by the end of the month next Monday if the gold price continues to rise sharply, with a solid close above $1,900 technically confirming a major gold bottom.

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.

Contact us to be instantly informed about the last minute developments. twitter‘in, Facebookin and InstagramFollow and Telegram and YouTube join our channel!