Longer-term charts neutral-bullish for gold, but bulls have a potential ace
Welcome to Kitco News' 2022 outlook series. The new year will be filled with uncertainty as the Federal Reserve looks to pivot and tighten its monetary policies. At the same time, the inflation threat continues to grow, which means real rates will remain in low to negative territory. Stay tuned to Kitco News to learn from the experts on how to navigate turbulent financial markets in 2022.
(Kitco News) - For several years back in the 1980s and early 1990s I worked on the futures trading floors in Chicago, New York and Europe. One common thread that virtually all the floor traders had in common was that they employed some form of chart reading (technical analysis) to guide them in their trading decisions. More than one veteran trader told me that a price chart reflects all the known and the expected market fundamentals in a market at the present time. That's a powerful statement and it's also why traders and investors should employ some form of technical analysis in the trading and investing.
It's important to keep in mind that chart analysis and trading can be divided into three timeframes: short-term, medium term and long term. The shorter-term traders are in and out of the markets often and would probably benefit from using mostly intra-day charts, such as hourly or even minute charts. Medium-term traders who trade less may stay in a market for several days or a few weeks are likely more inclined to employ daily bar charts in their analysis. Longer-term traders/investors who have a trading horizon of months or even years are better suited to more closely examine longer-term weekly and monthly charts. However, it's actually prudent for traders of all trading timeframes to examine the shorter-term, medium-term and longer-term charts. History shows that market prices, when trending, tend to gravitate toward historical highs (in an uptrend) and historical lows (in a downtrend).
Let's take a look at the longer-term charts for the Comex gold futures market—the weekly and monthly continuation bar charts for nearby futures.
If gold prices trend sideways into the end of the year, which appears likely given that's what they have been doing the past couple weeks, then the yellow metal would wind up losing about $100.00 an ounce for 2021. The weekly continuation chart for nearby gold futures shows that prices have been trending modestly down since the record high of $2,063 was reached in early August of 2020. It's not a strong price downtrend and the gold bulls can even argue that prices on the weekly chart have been trending sideways for the past six months. It would take a move in nearby gold futures prices below strong technical support at the 2021 low of $1,673.30 to give the bulls longer-term technical power to suggest a steeper and longer-lasting price trend would develop. The weekly chart also suggests that in 2022 prices will trend sideways in a range between $1,700 and $1,900.
The monthly continuation chart for nearby Comex gold futures remains longer-term bullish. Prices have been trending higher on the monthly chart since 2015. Since the 2020 record high was posted, price action on the monthly chart has been sideways and consolidative, suggesting the bulls may be storing up energy for another move higher in the coming months or years, including a new record high in the next few years but possibly coming as soon as 2022.
Combined, the weekly and the monthly charts for gold futures give a neutral-to-bullish posture for the yellow metal. Importantly, however, there is one major fundamental element lurking that bulls can point out as being their "ace in the hole." That is the specter of continuing rising and even problematic price inflation around the globe in 2022. History shows that hard assets, including the precious metals, tend to be favored over paper assets, like stocks and bonds, during times of overheated inflation.