Gold: Has The Bull Market Begun?

New York (Feb 21)  When the People's Bank of China devalued yuan in early August last year, gold rallied for a couple of weeks, to as high as around $1,169.80/oz before retracing back for three weeks, to as low as around $1,098.65/oz. Then it rallied again for five weeks, to as high as around $1,191.35/oz, before falling to the low of last year, around $1,046.25/oz for six consecutive weeks, and finally bidders came in the last week of November to close that week with a bullish engulfing candle.

Gold went sideways after the Fed increased rates for the first time after the 2008 financial crisis. Then, in the first week of January this year, PBoC devalued the yuan again and with the market conditions then - after the Fed's 0.25% rate increase and equities market tumbled as investors who mostly longed on borrowed money exited the market - gold rallied more than 18% in over six weeks, to reach as high as around $1,263.20/oz, a little shy below the weekly downtrendline.

So has the gold rally began? Not quite, we think. Even if it has just begun, we will still have a plenty of time to jump in during the correction. Looking at the gold futures market, the highest bid was for December 2016 contract at $1,237.90/oz and further, when the futures prices were analyzed in time sequence until Dec 2017. Market sentiment does not show an increment pattern.On the equities front that usually has a negative correlation to gold, the downtrend has started on the daily, and we expect the crash to be controlled as central banks now know better after the 2008 financial crisis. It is possible if the S&P 500 closes above 1,950 level that the market looks to test the upper downtrend channel on the weekly, especially if the Fed decides not to raise rates this March.

With the Federal Reserve planning to stick to its gun (though they have mentioned backtracking and even following negative rates policy if necessary), plus the fact that gold price is fixed twice daily, we are in the opinion that gold downtrend is intact, and will only turn uptrend once price closed above the weekly downtrendline (low of week May 13, 2012 to high of week Aug 25, 2013).

In the interim, we believe the 4H time frame offers the last push up to complete the 5th wave, before it dives for correction. We look forward to deploying our trend strategy in this last push.

SOURCE: Investing.com