Sunday, 14 January 2018

The Start of the Gold's Bull Market in the Year of the Tiger

Well, not yet. Soon.

If you have been following my financial/investment related posts, you would know i have been early in the calls. From time to time, these calls appear to be wrong at first because of the trading traps that  i've outlined in my previous post  Gold and Crude Examples of How Markets Play Trader with Traps.

Of course, i could play it safe and tell you in hindsight. But that's not a prediction, that's just stating facts. Stating facts is safer. I'm more gung-ho, and would like to make a fool of myself by making predictions.

 Déjà Vu 
I've been calling or at least hinting that the US Dollar Index (DXY) is forming a triple tops as it did in the past in my article series Gold Price and US Dollar Index (DXY) Triple Tops Formation - Part 1, Part 2 and Part 3. Especially in Part 3 where i pointed out that if DXY falls below 90.5, we'll be repeating the "cup & handle" formations.

Look at how eerily similar are the 2 "C&H" formations (enclosed in rectangles) that span over last 3 decades. This is either an outright spooky coincidence or is it a reflection of some hidden underlying nature of global trade and/or economic structure or is it the outcome of a conscious but unofficial Fed monetary policy? Being a pattern/meaning-seeking Homo Sapiens, i favour the last 2 explanations (although the last 1 sounds like a conspiracy theory. Maybe).

Monthly DXY from 1983 to 2018
Monthly DXY  chart from 1984 to 2018
(Click chart to enlarge)

The 2 green horizontal lines are the 2 respective pivot levels where DXY complete the technical formation in the last 2 cycles.

We have decidedly dropped below the green line of 92 level. It's at 90.77 level when this post is published.

2 things we need to be aware.

#1.  The green line shouldn't be a line, but a band. And this band can extends down to 90.5. We're at 90.77 as i type this. So this hasn't played out fully just yet.

#2.  This could be a trap. We could drop further and suddenly reverses direction. We've seen this all too often.

Having stated these 2 caveats, i will be totally reckless by saying that i think we'll see DXY falls much further. This would imply that gold would rise much further this year.

If DXY declines below 90, then gold should move well above $1380, which by definition, puts gold in the bull market TREND for the 1st time since 2011.

 The Turtle and the Hare Race 
We've seen gold moved to $1375 in 2016. As i stated in one of my post, that's nothing but a Sucker Rally. Sucker / Relief / Bear Rally tends to be very powerful, but short-lived. It's only a rally within an existing trend, not a change of trend.

From a technical point of view, after the powerful Sucker Rally of 2016, the 200 Day MA (in red) is still pointing DOWN unambiguously. You need time to turn the 200 DMA's frown upside down.

1 swallow doesn't a summer make; 1 rally doesn't a trend make. Just like suffering, gold needs time to work through and forget its painful bear market. Once this consolidation (grieving) period is worked through, and then and only then a bull market can start in earnest (turns that frown upside down).

Development of gold price since the start of Bear market in 2011
Development of gold price since the start of Bear market in 2011
(Click chart to enlarge)

Despite the huge move in gold price in the 1st 8 months of 2016, its price decline is just as ferocious. So the year ends in a pathetic 7% gain (well, at least it's positive). On the other hand, in 2017, there're a lot of zigzag consolidation, and yet the gold price manages to put in a 14.3% performance for the year.

Turtle sculpture in Singapore Zoo
Turtle sculpture in Singapore Zoo

Think of these 2 years of gold price actions to the famous tale of the Turtle and the Hare Race. In 2016 we had the Hare run really fast in the 1st half of the year and then decided to take a nap for the rest of the year. In 2017, it was the Turtle's turn to run. While it moves at a snail Turtle's pace, it moves steadily, and never stops to nap for long. So it manages to win the race more than twice as much as the Hare (14.3% vs 7%).

Bunny lantern during Mid-Autumn Festival, Garden by the Bay, Singapore
Bunny lantern during Mid-Autumn Festival, Garden by the Bay, Singapore

 The Year of the Tiger 
If 2016 is the Year of the Hare, and 2017 is the Year of the Turtle, then i think Year 2018 is the Year of the Tiger.

Tiger sculpture in Haw Par Villa, Singapore
Tiger sculpture in Haw Par Villa, Singapore

No. Year 2018 isn't the Chinese Year of the Tiger. None of these 3 animals are based on Chinese zodiac. There's no Turtle in Chinese zodiac, even though Turtle is probably the most Chinese animal in the 12 Chinese zodiac animals. Interesting, isn't it? (I thought  that if we can use bull and bear to describe market, there's  no reason i can't  call onto the help of other animals as well.  Just to be fair).

If DXY falls below 90 and gold couldn't move above $1380, i'll give up on gold completely. If that happens, the best thing one should do is shorting gold because it's beyond hopeless. But i don't think it'll come to that this year.

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