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Stealthy Gold

Every other asset class has outperformed Gold over the past one year that it's almost a forgotten asset class. But its building strength by stealth.

Equity, Bonds, Real Estate, Cryptos, name anything and it has outperformed Gold over the last one year. It is even losing it’s inflation-hedge status to the vogue of the season, Bitcoin. Gold is down 15% from its July 2020 highs. Not a great time for the asset class, right? Well, maybe not.

To set the context, you can read through an earlier article I wrote about A Case For Gold. Historically, Gold has performed well when inflation scare increases. But the craze for Bitcoin has taken away some sheen off Gold. There are numerous articles on how Gold is being neglected in favour of cryptocurrencies, despite a surge in inflation across the globe. The bull run on equities has also dented the performance of Gold despite a prevailing scepticism in the market's rally. Similar cautious sentiment on equity has benefited Gold in the past, but the spotlight on Gold has been missing from the mainstream media.

But beneath the spotlight, Gold has been moving quietly and holding up near it's higher base. It’s astonishing to note that Gold has actually held it's support levels despite all the negative sentiment surrounding it. In the earlier article in June 2021, a Cup & Handle formation was seen forming on the chart, a bullish setup. Though it was too early to call the pattern at that time, Gold Futures has followed the expected path like it is scripted! The price never broke the pattern and has been showing a trajectory which reinforces the pattern.

Gold Futures Comex - A Cup & Handle
Gold Futures Comex - A Cup & Handle

This stealthy price action in Gold Futures is indicative of an accumulation which the larger investment universe yet to take note off. The first sign of strength comes when the white trend-line is broken and with the final confirmation of a breakout expected after Gold Futures takes out the previous high around $2090. We are probably in an incubation period that might last anywhere between 3 to 6 months until the handle pattern fully plays out. Until then, Gold is likely to be off headlines. It's not until much later does the public opinion on any asset changes, by the time the asset would already be well into its move. If & when Gold starts making new highs, the narrative for the bull market in both bonds and equity could change. Whether a weakness in equity would trigger a rally in Gold or instead, a strength in Gold would indicate a prospective weakness in equity is yet to be understood. But with an expectation of a significant rally of about 80% on Gold beginning in about 3-6 months, that's probably the time horizon to look at the topping out of markets. In either case, work towards your asset allocation and don’t ignore the part Gold plays in your portfolio. The case for Gold only got better.

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Aneetha Suganandam
Aneetha Suganandam
Oct 24, 2021

Very good article 👍

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