IN MAY NEAR 8% GAIN HANDED LONGS IN THE GOLD THEIR BEST RETURN IN 10 MONTHS
gold

IN MAY NEAR 8% GAIN HANDED LONGS IN THE GOLD THEIR BEST RETURN IN 10 MONTHS

Samarth Mercantile

*Precious metals are likely entering a new bullish price phase

*Traders/investors had already started hedging risks of an unknown market event


As we move into the festival and lagansara months, the one thing that everyone seems to be asking is “When will the markets start the next downside price correction or reversion event?” We do not have any clear timing regarding if or when a reversion event will take place yet.

Some research article, that suggests this type of event would likely happen between August/September 2021. According to an analysis by the World Gold Council, real interest rates in the US would have to rise to over 2.5% to have a significant long-term negative impact on the gold price.

But this is good news for gold, say some analysts, as we are more convinced than ever that negative real interest rates are the ‘new normal’. Gold vaulted back to above $1,900 an ounce, effectively crossing the finishing line for May with a near 8% gain that handed longs in the yellow metal their best return in 10 months. If the right conditions setup, after we have seen a big global market recovery rally, the reversion event may be even bigger than we expect.

Precious metals are likely entering a new bullish price phase. It is suggesting that a new advancing cycle phase may push gold to levels above $2100. Gold may continue to rally higher, reaching a peak sometime near mid-October 2021. Once gold clears the $1960~$1965 level, prices should continue to advance to $2067, then $2305 moderately quickly. The $2067 level represents resistance just below the recent highs from August 2020 near $2107.

In the months following the stock market collapse in March 2020, we saw a very dynamic rise in the gold price, from $1599 culminating in new all-time highs on 6 August 2020. Despite price declines in the second half of 2020, the gold price gained 24.6% in US dollar terms in 2020. In April 2001, gold was trading near $256 and reached a high of $1828 in August 2011 a rally totaling over 450%.

If something similar happens based on the recent price lows, gold could rally to levels over $6500. At this stage of the precious metals rally, which is remarkably like the 2003 to 2006 gold rally, we may see gold continue to rally higher while the US/Global markets continue to trend moderately higher. This is a shift in how capital is being deployed in anticipation of the US Fed and global central banks entering a tightening phase.

This process also took place in 2005~2007 as the US Federal Reserve raised interest rates attempting to deleverage the markets in an orderly format. The major stock market indexes and precious metals continued to rally throughout this event because traders/investors had already started hedging risks of an unknown market event while the Fed continued to raise rates.

(Disclaimer: This analysis is only for educational purpose and is not and must not be construed as investment advice. It is analysis based purely on economic theory and empirical evidence. Readers are requested to kindly consider their own view first, before taking any position.) Date: 31-5-2021

Jayant Agro Organics Ltd

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