Gold Price Forecast: January Could Taste Sour For Gold

December 31, 2020
CFA, Editor & Founder @ Sunshine Profits

fine gold

As 2020 quickly draws to a close and the champagne corks pop, precious metals investors have January 2021 on their mind and how gold will fare just after the New Year. Let’s take a quick look at what the previous years tell us.

In a nutshell, gold didn’t just “soar” in previous Januaries (as the gold seasonal patterns might suggest), but rather reversed at the end of the year and then moved in the opposite direction in January – canceling the December moves. “New year – new me” sounds cliché, but that’s what gold has actually been adhering to instead of simply soaring.

Let’s take a look at gold’s very long-term chart for details.

Figure 5 - Gold Continuous Contract Overview

The above chart covers the past 40 years. The green vertical lines represent cases when (approximately) the turn of the year was a great buying opportunity. The red lines represent cases when (approximately) the turn of the year was a great selling opportunity.

There were 25 cases when gold visibly reversed close to the end of the year or the beginning of the new year – so that’s what happens in most cases.

In 13 of the cases, those were buying opportunities.

In 12 of the cases, those were selling opportunities.

Since the number of turning points is not divisible, the 13-12 breakdown is the closest that it can get to 50/50.

So, while it’s true that in most past cases, the turn of the year was positive for gold, it’s also true that the gold price forecast for January 2021 is not necessarily going to be bullish. The context is important, since:

  1. Gold has been rallying in December 2020

  2. Gold tends to reverse at the turn of the year

The implications of the 0 becoming a 1 at the end of the date are actually bearish for the yellow metal.

Moreover, please take a look at the lower part of the above chart. It features the MACD indicator based on the monthly gold prices. There were very few cases when this indicator moved up significantly and then clearly declined. This happened only four times in the previous four decades. Once in the late 1980s, once in early 2008, once in 2011, and once recently. In all previous cases, it heralded months of declines.

This does not bode well for the price of the yellow metal at all, especially considering that it recently invalidated its breakout above the 2011 high. Just like champagne or wine that has been lying around open for too long, January could leave a bit of an unpleasant aftertaste for gold bulls.

Summary

The top is in and the following weeks are not likely to be pleasant times for anyone who jumps on the bullish bandwagon just because prices moved higher in the previous months. But what’s profitable is rarely the thing that feels good initially. As silver often moves in close relation to the yellow metal, forecasting gold’s rally without a bigger decline first is thus likely to be misleading. Silver is likely to slide as well. The times when gold is continuously trading well above the 2011 highs will come, but they are unlikely to be seen without being preceded by a sharp drop first.

Thank you for reading our free analysis today. Please note that it is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the outline of our trading strategy as gold moves lower.

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Przemyslaw Radomski, CFA
Editor-in-chief
Sunshine Profits - Effective Investments through Diligence and Care

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All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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Przemyslaw Radomski, CFA, is the founder, owner and the main editor of SunshineProfits.com.  You can reach Przemyslaw at: http://www.sunshineprofits.com/help/contact-us/.

 

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