The gold price started the year quite bullish only to turn bearish around summer time. What does this mean for 2019? We look at our leading indicators in this article in order to do our gold price forecast for 2019.
Note that it is our annual tradition to release our gold price forecast. This is the one from last year, and the one before. Our gold price forecast for 2019 is one of the cornerstone forecasts in our market forecasts for 2019.
Gold price forecast for 2019: leading indicators
Note that any gold price forecast is a challenging task because there are plenty of variables that might play a role. Moreover, gold has traditionally done well under a variety of conditions.
For instance, the 2002 till 2007 rise was primarily due to falling interest rates and a rising real inflation rate combined with a ‘risk on’ market sentiment. That’s opposed to the 90ies when there was ‘risk on’ but interest rates were essentially flat on an annual basis.
On the other hand early 2016 there was a strong rise in precious metals, though temporarily, which was triggered by the fear trade.
Sometimes gold can rise because of fear, but for gold to rise on the gold long term there must be some rising real rates. That makes our gold price forecast somehow more specific.
In sum, we do not recommend to get caught up in the endless stream of headlines. It will only confuse investors. Some recent examples include this imaginary correlation between retail sales and the gold price, physical demand in India vs the gold price or even gold miners influencing the gold price. That’s really not how it works, and we urge serious investors to stay away from the clutter!
Leading indicator #1 real rates
So the first leading indicator is real rates. As seen on the long term rates chart (see here, not embedded in this article) 20 year Yields in the U.S. are clearly rising after a giant rounding bottom was set starting 2012. This suggests inflation has to rise stronger than rates in order to have an inflationary environment.
Looking at inflation, both government data but also shadowstats, we see a similar trend: higher. Inflation stats here. It is the trend that is interesting to us, not the absolute data.
Real rates will likely be rising in 2019 but inflation as well. Real rates may be rising but it will likely not be significant unless something unexpected takes place which changes the current trends.
Leading indicator #2 Commitment of Traders (COT)
The second leading indicator in our gold price forecast for 2019 is gold’s Commitment of Traders report, in short COT.
Based on the COT report we see that the downside in the gold price is extremely limited. How can we know? Look at the positions of the largest market participants (middle pane). The number of long contracts of non-commercials is at the lowest point in 9 years (red bars). This is not only historically low, it is even exceptional. It suggests that the downside in the gold price is extremely limited. Note this is a medium term forecast, it cannot be take for granted for the full year 2019.
Leading indicator #3 Euro
Our third leading indicator in our gold price forecast for 2019 is the Euro.
The next chart shows the correlation between the gold price (light grey) and the Euro (black). Moreover, important turning points in the gold price are indicated with light grey circles, and how they map to the Euro is visible in green circles.
What’s clear is that the gold price breakdown of 2013 was a game changer. Before that point, the correlation between both was neutral to weak. Since then, however, there is a very strong correlation between both assets.
More importantly, in recent years, the Euro has been leading the price of gold. Every time the Euro tested secular support or resistance, or broke out or down, it preceded an important top or bottom in the gold price.
For 2019 it seems that the Euro is moving in no man’s land, at least based on the current trend. The Euro has a track record of moving fast once it breaks out or down. Also, near secular support or resistance it tends to stay there for a while. Currently, though, we don’t see any of this.
Note that the Euro chart must be watched closely in 2019 as it may determine major trend changes in the price of gold, impacting directly our gold price forecast for 2019!
Gold price forecast 2019: price targets
Our leading indicator analysis above suggests the following for our gold price forecast for 2019: the COT report says gold is near a major bottom and that gold will not dip below $1200 in the next few months going into 2019, the real inflation rate is mildly bullish, the Euro is not showing signs of wild moves.
We combine this with major chart structures on gold’s chart in order to do an educated gold price forecast for 2019.
The gold price weekly chart shows this triangle pattern in recent years which is part of the major corrective channel since 2011. Visibly, there was a failed breakout from the correction in 2018. The recent breakdown might also be failed because there is a clear rounding bottom which likely is the result of extreme readings in the COT report.
We tend to believe that the price of gold will go up to the $1300 area in 2019.
Moreover, it is clear from this chart that gold is setting a range, and it will be an important point in 2019: the $1200 to $1375 range. Below $1200 is bearish, we can hardly believe gold will stay below $1200. Between $1200 and $1275 is more or less neutral. Above $1275 is mildly bullish. Above $1375 is wildly bullish.
As part of our gold price forecast for 2019 we believe that gold is setting a major cup-and-handle on its chart. The recent breakdown marked the start of the handle. We believe that gold, in this formation, will go back up in 2019 to test the $1300 to $1375 area. As that will be the 3d attempt for gold to break out of its strong resistance (red line on the chart) there is a fair chance gold will succeed.
That’s why our most bullish gold price forecast for 2019 is that gold will hit $1550 in 2019 (20% probability), but only if it succeeds breaking through the $1375. The $1375 test is a base case scenario (75% probability).
On the flipside, any failed attempt to stay above $1200 will be the bearish scenario, and it might gold to $1050, though the least likely in our opinion (less than 5% probability).
The gold price monthly chart does not reveal any new insight. It confirms the weekly. As long as there is no divergence between timeframes we consider it a good thing. All comments are annotated on the chart below.
Gold stocks in 2019: a once-in-a-decade buy opportunity
That said, we believe that gold stocks are near a once-in-a-decade buy opportunity. We wrote about this at length in our Top Gold Stocks for 2019 update.
Look at the gold miners index, monthly chart. It shows how peak to trough gold stocks have corrected 79% since their pea in 2012. This clearly is a buy area. The time gold stocks will trade near their secular support is unknown, it may vary from a couple of weeks till a couple of months, depending on how fast the gold price moves back above $1300. But, one thing is clear, if gold surges above $1300, and, ultimately, above $1375, we will see wild moves higher in 2019 in the oversold gold stocks market. Stay tuned, as we will publish our gold stocks forecast for 2019 anytime soon.
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