Gold has been a negative performer in 2021 losing about 5% in a lackluster year. However, while it’s been fluctuating in a torturous horizontal range during the year, the technical picture has been improving markedly since last summer:
Longer-term, there’s no question that the Gold price is in an intact uptrend. In spite of a sharp correction from the August 2020 peak, over the last few months we’ve seen successively higher troughs indicating that the net buying pressure has been prevailing over selling pressure at higher and higher prices. Importantly, the most recent rally has begun breaching the top of the downward-sloping consolidation channel. Not surprisingly, the TrendCompass has generated a strong buy signal on Gold this morning.
To be clear, we’ve had a net long position since the 20th December, but this morning’s signal (per our Major Markets portfolio) enhanced that exposure from 33% to 83% – very nearly a full long exposure:
This exposure is generated by 12 autonomous I-System trend following strategies that track long-, medium-, and short-cycle trends. Today’s signals are shown below:
Of course, any trend follower worth their salt is at peace with the fact that more than half of all their trades will be unprofitable, I believe that today might mark an important juncture for Gold.
Gold could be due for an explosive rally in 2022
Gold is a miniscule market relative to the sheer volume of investable liquid capital in the global markets. Estimates vary, but the full market cap for all the commercial gold in the world is between $5 and $6 trillion. Here’s how they arrive at that number: the world’s entire gold inventory – all of the above-ground physical gold is estimated to be between 5.7 and to 6.1 billion ounces. At the current prices, that’s between $10 and $11 trillion.
But about half of this gold is in the form of jewelry so it has no commercial use. Therefore, the remaining half: between $5 and $6 trillion, represents the full market cap of all the commercial gold in the world – an amount that’s dwarfed by global equity markets which have now surpassed 120 trillion dollars. Most of that is controlled by the global shadow banking system which is estimated at about 200 trillion.
Because Gold has remained depressed relative to other commodities, and even more so relative to stocks and bonds, the precious metals have not been in vogue with investors. But fashions do change and when the markets again acquire an appetite for gold we could see very substantial price readjustments. The massive pool of liquid assets that’s flooded into one market after another partly explains some of the explosive price increases we have seen over the recent years.
Over the recent years the markets have increasingly manifested very sharp, extreme price events that seem unprecedented and could not have been predicted in advance. Here’s what Bitcoin looked like mid-way through 2020:
Just a few months later, it looked like this:
Who knew? But again, we did see a trend gradually forming through 2020, and when a critical mass of investors decided they wanted to get into Bitcoin the trend sharply accelerated, again going almost vertical. I see no reason why investors could not, some day in the near future, decide that Gold is the asset to have.
At that point we might see the precious metal vault far higher than we can anticipate today. Remember, during the inflationary 1970s, the price of gold rose from $35/Tr.Oz in 1971 to $850 in 1980 – a twenty-four fold rise. Whether we’ll see a similar scenario in the coming years, nobody can tell, but I believe the opportunity is there and all things considered, it does seem very compelling.
We can’t predict WHEN the prices might begin to move, or how fast they will rise, but the one thing we know for sure is that large scale price events almost invariably unfold as trends which can months and years. Systematic trend following is the most reliable way to navigate them. One of the best daily trend following newsletter is I-System Trend Compass published by yours truly. For more information, please follow this link.
In sum, Gold could be the shining star in 2022 and today’s signals should be regarded as an early tactical buy for investors. The structural imbalances in the markets, which could catalyze very substantial price readjustments could see Gold follow in the footsteps of the many hockey-stick rallies we’ve seen over the recent, QE years. Even for those who think Gold is boring, I believe that the present situation is compelling enough to start paying attention.
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