Slide 1

Hello, Dear Clients.

The general market sentiment is very bullish on Gold right now, with people looking for 2000$+ levels and Ray Dalio's article on Linked adding to the sentiment.

But, we want to share with you reason why Caution on Gold may be good.

Today is 26th July 2019, Gold is at $1418 and I am Vikram Murarka.

This video is a little long, but it might be worth your time. So, here goes...

Slide 2

True to its nature as a safe haven, the rise in Gold since May 2019 has been on the back of global tensions.

The left axis shows weakness in Yuan due to US-China trade wars. The right axis shows strength in Gold in the same period due to the US-China trade wars and US-Iran tensions.

It is said that the Chinese central bank has bought Gold in this period, but we would not lay too much store on that. I will show you why in the next slide.

Basically, the rise in Gold since May seems to be driven by news rather than value.

Slide 3

Let me show you the BIG picture in Gold, since 1836.

The upmove from $21 in the 1870-1930 period to $1921 in 2011 mave have completed a 5-wave sequence.

Wave 1 - Gold rose with WWI

Wave 2 - We take this period of stability as Wave 2

Wave 3 - started with the US breaking the Gold Standard in 1971 and ended with the Soviet invasion of Afghanistan in 1979-80.

Wave 4 - saw Gold come down to $272 in 2001, where the Bank of England famously sold its Gold reserves. That is why I am not very taken in by central bank action on Gold.

Wave 5 - saw Gold rising with the global commodity boom and Dollar weakness, culminating at 1921 in 2011.

Now we are possibly seeing a small A-B-C correction, where A has already happened. The current rally might be B and may end anywhere now, on this Moving Average resistance. A wave C (yet to happen) may bring the Log Chart down to 6.90, which would translate to $992 on Gold.

Slide 4

This is a very important chart, showing a very strong correlation between Gold and Crude since 1861.

And, regular clients know that we are bearish on Crude, targeting $33 by 2020-2021. Therefore, if the correlation holds, Gold too may come down towards $992.

Slide 5

Here is more medium term chart on Gold.

Here too, we see that the upmove since 1170 in Aug-18 may itself have been a 5-wave upmove, which might have got completed at $1454 in July. 

Slide 6

Looking at a slightly bigger picture, we see that $1483 is the 50% Fibonacci retracement of the fall from $1920.70 to $1045.40. Also, we have a trendline Resistance at $1500 here.

So, there is a decent chance that Gold may either have topped out at 1454 itself, or might top out anywhere in the 1483-1500 region.

And now comes the really interesting part.

Slide 7

This chart shows the dramatic underperformance of Gold vis-a-vis the Dow Jones, clearly showing how Equities have been a better investment than Gold.

And, this underperformance is still very much in force. The Gold/ Dow ratio faces an important Resistance right here. If and while this holds, Gold can fall again.

Of course, the Resistance could break as well. But, then we would want to buy Gold only if we see clearly that the Resistance has broken. Not before.

Slide 8

Not only has Gold underperformed the Dow Jones, it has underperformed the Sensex as well.

And it faces a crucial Resistance right here, coming from 2007.

So, again, we cannot buy Gold unless this Resistance is broken.

Slide 9

Gold also faces Resistance against Copper right here. In fact, if the Gold-Copper ratio comes down, it might be good for Equities as well, as fear goes out of the market.

Slide 10

Gold has a good Resistance against Crude as well, and this is, in fact, a pretty strong Resistance.

Slide 11

And lastly, Gold is just coming off a Resistance right here on the MCX in India, one of the largest markets for Gold.

So, not only does Gold have Resistances on its own charts, it does not seem to be a value buy against 5 other markets.

This makes us very cautious about becoming bullish on Gold at current prices.

Slide 12

And, if the Resistances that we have pointed out hold, then Gold could come down towards $1360 or even $1300 by December.

Any positive news on the US-China trade front could be a positive trigger. On the other hand, fresh deterioration in the US-China or US-Iran situation could lead to the Resistances breaking. That said, the charts suggest greater chances of positive news and Gold coming down towards $1360-1300.

It may/ may not rise again from the $1360-1300 region. But, if the very long-term reading is correct, there may also be chances of seeing $992 by 2020-2021.

Let us see now that goes.

Slide 13

For now, those were the reasons why we think Gold does not glitter at current levels.

Thank you for your time.

For our regular high value research, please log on to https://kshitij.com/forecasts

Thank you again.