Gold Has Not Lost Its Luster, Not Yet
Gold is close to testing a very important level. The market is clearly eager to test the significant $1680 level. The fight between gold bulls and gold bears will reach momentum soon, and this is happening a few days before the next CPI figures are released.
Gold is trying to hold on, at least that is what the gold chart tells us. There is certainly a crucial test ongoing. It appears like the market is preparing a big bounce or a breakdown by Sept. 13, when the next CPI report will be out.
Gold has not lost its luster. At least, not yet. To be more precise, as long as gold respects the $1680 level, which goes back 18 months, there is no damage and only a long-term bullish consolidation to face.
Recently, we wrote the piece Gold’s Chart Suggests Stagflation Is Here To Stay In 2023 And Beyond with this conclusion:
"If gold was able to hold strong, amid monetary tightening and softening economic growth, it must mean one thing: stagflation is here. Given the structure, we would argue that stagflation is here to stay."
Imagine what it would look like if gold holds, and if the world were to enter a period with inflation getting under control and lower economic growth. Stated differently, the gold chart is signaling exactly that at the time of writing.
The reality is that the market is waiting for the next CPI report. Much will depend on the pace at which inflation is decelerating, which will directly inform monetary policy (read: rate hikes by the U.S. Fed). This, in turn, will inform the pace of monetary tightening and will instruct the US dollar. That’s what we concluded in A Gold Chart You Have To See As We Head Into Another FOMC Meeting:
"If the upwards move is done in the US dollar, that means that gold will make a spectacular bounce from the bottom of this multi-year consolidation channel. This bounce would clearly lead to the materialization of our gold price forecast for 2022 with a price target of $2500."
In the meantime, we can see that inflation expectations (as measured by the TIPS ETF) got lower last week, particularly on Wednesday. TIPS is now back at levels from the period 2013–2018. Arguably, this should act as support, which would imply that monetary tightening will not accelerate but instead stagnate. This is similarly something to be confirmed by market developments.
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