Long Term Gold Forecast: Why I will continue to buy
Before starting; I am a mid-long term trader on commodities. A good trend-trade worths more then 1.000 intraday trade. And let’s continue:
Gold is one of the best performing asset classes of 2017, but it has faced headwinds over the past few weeks based on market expectations that the Fed will raise rates in December. This expectation has caused a set of market movements, including a stronger dollar and weaker gold prices.
But, my idea has not been changed. I am still bullish. And I will use all pullbacks as buying opportunities.
Whatever the FED’s decision in December, I bet on GOLD prices will move up. Why?
Once the market wakes up to the real state of play, probably in late November or early December, the current trends will suddenly reverse. You’ll see the dollar down and gold prices up.
I wrote several times. Physical demand for GOLD is very strong. And Central Banks are adding physical GOLD to their stocks.
That makes the next few weeks an excellent entry point for gold and gold mining stocks. You have a chance to take advantage of weakness and position ahead of the rally to come when the Fed tips its hand.
Gold seems poised to resume its march to $1,350 and then $1,400.
The physical fundamentals are stronger than ever for gold. Russia and China continue to be huge buyers. China bans the export of its 450 tons per year of physical production.
Gold refiners are working around the clock and cannot meet demand. Gold refiners are also having difficulty finding gold to refine as mining output, official bullion sales and scrap inflows all remain weak.
We may see daily price actions. Forex market is something but the physical market is completely different then forex and futures trading.
The problem, of course, is unlimited selling in “paper” gold markets such as the Comex gold futures and similar instruments.
A flash crash in June was precipitated by the instantaneous sale of gold futures contracts equal in underlying amount to 60 tons of physical gold. The largest bullion banks in the world could not source 60 tons of physical gold if they had months to do it.
There’s just not that much gold available. But in the paper gold market, there’s no limit on size, so anything goes.
There’s no sense complaining about this situation. It is what it is, and it won’t be broken up anytime soon. The main source of comfort is knowing that fundamentals always win in the long run even if there are temporary reversals. What you need to do is be patient, stay the course and buy strategically when the drawdowns emerge.
The main source of comfort is knowing that fundamentals always win in the long run even if there are temporary reversals. What you need to do is be patient, stay the course and buy strategically when the drawdowns emerge.
China may be leading the world back to some form of gold standard by allowing oil exporters to convert the yuan they receive from China into gold on the Shanghai Gold Exchange.
Deteriorating relations between the U.S. and Russia will only accelerate Russia’s efforts to diversify its reserves away from dollar assets (which can be frozen by the U.S. on a moment’s notice) to gold assets, which are immune to asset freezes and seizures.
The countdown to war with North Korea is underway. A U.S. attack on the North Korean nuclear and missile weapons programs is likely by mid-2018. The stock market may not have noticed, but the gold market has. This partly explains why gold has done as well as it has in the face of all the talk about a December rate hike.
And that leads us to with our friends at the Fed. Despite the recent weak inflation data, the market is still pricing in about an 86% chance of a December rate hike. Rate hikes make the dollar stronger and are a head wind for the dollar price of gold.
But as I said, the Fed will not hike rates again in December. Once the market wakes up to the reality of a prolonged “pause” by the Fed, they will conclude correctly that the Fed is once again attempting to ease by “forward guidance.” This relative ease will keep the dollar on its downward trend and be a boost to the dollar price of gold.
The determining factor is disinflation.
The Fed’s main inflation metric has been moving in the wrong direction since January. The readings on the core PCE deflator year over year (the Fed’s preferred metric) were:
January 1.9% February 1.9% March 1.6% April 1.6% May 1.5% June 1.5% July 1.4% August 1.3%
Notice the trend?
The Fed’s target rate for this metric is 2%. It will take a sustained increase over several months for the Fed to conclude that inflation is back on track to meet the Fed’s goal. There’s no chance of this happening before the Fed’s December meeting.
A weak dollar is the Fed’s only chance for more inflation. The way to get a weak dollar is to delay rate hikes indefinitely, and that’s what the Fed will do.
And a weak dollar means a higher dollar price for gold.
Current levels look like the last stop before $1,350 per ounce gold. After that, a price surge is likely as buyers jump on the bandwagon, and then it’s up, up and away.
There’s an old saying that “a picture is worth a thousand words.” This chart is a good example of why that’s true:
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Warning: All markets trade in different phases; bull and bear markets don’t start overnight. Markets build through three major phases and depending on the time frame you are trading, you will see different phases.
If you enter a trade by analysing the H4 chart frame, this is just a day trading, your stop loss and take profit levels must be set up accordingly.
WARNING ABOUT TRADE IDEAS
- We enter trades on different pairs and we look for other trade opportunities. So we recommend you to enter trades with the smaller size.
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- Stop Loss and Take Profit Levels are +/- 15 pips minimum.
- If we do not publish an update close the 40% of your position on the TP1 level and move your stop loss to entry level.
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- If we mention as “pullbacks are buying/selling “ opportunities and we publish pullback levels, you do not need to wait for a signal from us. Use these opportunities at the mentioned levels.
- All markets trade in different phases; bull and bear markets don’t start overnight. Markets build through three major phases and depending on the time frame you are trading, you will see different phases. If you enter a trade by analysing the H4 chart frame, this is just a day trading, your stop loss and take profit levels must be set up accordingly.