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The Positive Outlook of Gold’s Current Upleg: A Comprehensive Analysis

The Positive Outlook of Gold’s Current Upleg: A Comprehensive Analysis

A Review of Gold’s Recent Bearish Phase

There has been a significant surge in bearish sentiment in the gold market during recent weeks of selling. However, this phase can actually be characterized as a slight pullback – not too significant or abrupt. It's crucial to interpret this gold-futures selling as merely moderate. Such occasional retreats within progressing uplegs are necessary for preserving equilibrium in sentiment. Pullbacks are, in fact, bullish in nature, playing a crucial role in expelling excessive greed and setting the stage for further buying as gold continues to demonstrate an upward trend.

A Closer Look at Gold’s Upleg

The ongoing upleg of gold has already displayed promising signs. It emerged in the early part of October following an 11.3% correction-level selloff. It's important to note that pullbacks, corrections, and bear markets are distinct market movements, classified primarily based on their magnitude. A pullback tends to keep the ongoing upleg untouched, being a minor sub-10% selloff. Corrections are more substantial, ranging between 10% to 20% selloffs, which usually terminate an upleg. When the total losses exceed 20% from recent peaks, we enter the territory of bear markets.

Key Factors Influencing the Gold Market

One key indicator that suggests an imminent zenith of a gold upleg is overboughtness. Overboughtness can be gauged by comparing price levels with their respective 200-day moving averages. Looking at the previous five years, gold has generally seen considerable topping when stretched 15%+ above its 200dma. As of late December 2023, gold was merely 6% above its 200dma - hence, there weren't any technical reasons for this upleg to falter.

Role of Investment Demand in Gold’s Upleg

Surprisingly, during the 2.7 months when gold soared 14.2% to its nominal record closes, GLD+IAU holdings only marginally moved up by 0.2%! Investment demand for gold was virtually stagnant. Investors usually follow the bandwagon and tend to mirror gold's upward trend only after it has been showing a consistent rising pattern for a while. This eventuality is yet to materialize.

Future Projections for Gold Upleg

Even when this current upleg of gold escalated to 14.2% gains some weeks back, a considerable amount of buying remained. With the stage-one gold-futures short covering largely utilized, over half of the likely stage-two long buying is yet to take place. Add to that, the stage-three investment demand has not even kicked off. Thus, there is almost no likelihood that this gold upleg has run its course.

In Conclusion

Despite the recent minor pullback, gold's current upleg continues to display a positive technical outlook. Hence, investors shouldn't let the greater-than-expected bearish sentiment affect their investment maneuvers. The extensive buying potential that remains positions the gold market for a strong upward drive. With a looming reckoning in the face of the stock market's bubble-level price-to-earnings ratios, alternative assets like gold are likely to start shining brighter.

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