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Market News Inflation or deflation? Gold price benefits, says WGC (With Trading Strategy)

Inflation or deflation? Gold price benefits, says WGC (With Trading Strategy)

Gold steady ahead of U.S. Fed policy decision; Gold to push above $2,000 as Saxo Bank sees 2021 as the start of the broad commodity bull market.

Eden
2021-01-27
669

黄金封面.jpg


Gold prices held steady on Wednesday ahead of the U.S. Federal Reserve’s monetary policy decision due later in the day and as investors awaited a stimulus package in the world’s largest economy.


The spot gold fell 0.07% to $1849.03 per ounce by 15:50(GMT+8) on Tuesday.


After the COVID-19 pandemic, markets will likely see extremes. And whether it will be deflation, inflation, or both, gold prices stand to benefit, according to the World Gold Council (WGC).


Investors may choose to hold gold in both deflationary or inflationary environments, WGC head of research Juan Carlos Artigas told Kitco News last week.


“When inflation expectations increase, investors start to look for a hedge against inflation. Gold historically tends to outperform other assets in a period of high inflation,” he said. “In a deflationary period, cash tends to be very useful. Gold may still be functioning. Even though it is not a currency in itself, it functions as a de facto currency, preserving capital, especially in an environment where the money supply is increasing a lot. If you combine it with the fact that interest rates are at extremely low levels or negative, it signals that gold could be used in that environment.”


These two environments are the most likely scenarios, Artigas pointed out. “Most likely, we go to one of the extremes. Might see deflation first.”


But as the government keeps monetary policy accommodative and continues stimulus, it could result in high inflation. “If there is no consumer price inflation, there could be asset-price inflation,” Artigas said.


When describing what will keep gold supported this year despite the growing risk-on sentiment, Artigas highlighted four primary drivers — economic expansion, risk and uncertainty, opportunity cost, and momentum.


Many investors forget that gold has a dual nature: investment side and consumer side said Artigas.


“There are positive links between a significant portion of gold demand and economic expansion. Periods of economic recovery tend to benefit consumer demand. As the economy recovers, consumer demand will start to be more supportive, takes away one headwind for gold,” he said.


This year, aside from economic growth, there will be low-interest rates, more government stimulus, growing deficits, and more risk, Artigas added. “Interest rates are not likely to increase any time soon, which means the opportunity cost of holding gold is very small or non-existent, which is supportive of investment demand.”


Rising valuations of U.S. equities are also a possible driver of gold this year as many metrics point to extremely high valuation levels.


“If the fundamentals don’t catch up with valuations, they might come down. It is still early in the economic recovery cycle. Investors at present are aware by having stocks and equities, alternatives, and some other assets. They are increasing risk, and they need to manage that risk. Given that bonds at present don’t look as attractive, gold becomes an alternative,” said Artigas.


WGC also noticed a political driver that will likely benefit gold this year. “Historically, periods, where there has been a Democratic president combined with the majority in the Senate and the House, gold, has tended to perform well,” stated Artigas. “There is a perspective that some policies may create higher deficits, increase in money supply, and create inflationary pressure.”


Gold to push above $2,000


On top of everything, there is a layer of the unknown, which could reveal some long-term problems as global economies begin to recover from the COVID-19 pandemic, Artigas added.


“When the global financial crisis happened, economic recovery started in 2009. However, it was not until 2010 that suddenly, the aftermath resulted in a crisis in Europe. Pressures built up, and we had unintended consequences,” he said. “Indeed, vaccine news is creating positive momentum. But we won’t know if there are problems down the line until time passes.”


“A commodity bull market is part and parcel of a new secular inflationary regime, a development few investors alive recall during their professional careers, as the last one ended about forty years ago,” said Steen Jakobsen, chief investment officer at Saxo Bank, in the bank’s first-quarter outlook report.


“We think this theme will rapidly come to dominate investors’ attention in 2021, and could last for a decade or more. The key driver is the enduring response to the pandemic, which only accelerated trends in inequality that had been building since the 1980s and the following three decades of globalisation. From here on out, we will see a real macro paradigm shift as the policy focus drifts away from the traditional focus on ensuring financial stability to one that demands social stability above all else,” he added.


Looking specifically at the precious metals market, Ole Hansen, head of commodity strategy at Saxo Bank, said in the first-quarter report that he expects gold prices will continue to be well supported by rising inflation pressures, coupled with a weaker U.S. dollar.


Currently, the bank is looking for gold prices to push to $2,200 an ounce this year, with silver prices rising to $35 an ounce.


Despite gold’s lackluster performance in the last two weeks, Hansen said, “we maintain a constructive view on the sector with rising yields being primarily the result of a gold-supportive rise in inflation expectations; this will leave real yields, a key driver for gold, well into negative territory. Together with accommodative central bank policies and renewed dollar weakness, the path of least resistance remains to the upside.”


Trading Strategy (source: Trading Central)

Pivot: 1858.00


Our preference: short positions below 1858.00 with targets at 1846.00 & 1840.00 in extension.


Alternative scenario: above 1858.00 look for further upside with 1864.00 & 1871.00 as targets.


Comment: a break below 1846.00 would trigger a drop towards 1840.00.


Supports and resistances:

1871.00

1864.00

1858.00

1851.00 Last

1846.00

1840.00

1831.00

Guideline for Trading Central strategy 


Trend chart reading guideline


1. First look at the time period in the upper left corner of the chart: ·30MIN and 1H chart shows the trading suggestions for intraday ·Daily chart shows the market trend analysis in next 2-3 days


2. The blue horizontal line on the chart marks the pivot: pivot indicates the reversal of the market. When the price is above the pivot, it indicates an upward trend, when the price is below the pivot , it indicates a downward trend. When the price breaks through the pivot, the trend is reversed.


3. The red and blue thin curves in the Candlestick chart chart are technical indicators: Red line is MA20+Bollinger bands, Blue line is MA50. under the Candlestick chart chart are also the technical indicators: Blue line is RSI, Red line is 9MA;


4. The green horizontal line is the resistance level for a price increase, and is also the profit target for long orders; the red horizontal line is the support level for a price decrease, and is also the profit target for short orders.


How to use TC strategy?


1.[Pivot] is the reversal line of the market trend. When the price up the pivot line which means in Bullish, you can open a long position or Buy. on the contrary, when the price under pivot line which means in bearish. You ‘d better make short positions or Sell. 


2. [our preference] is the main trading suggestion for your reference. You can exit your trading refer to this target or close positions before it.


3. [Alternative scenario] is the plan B for your reference. 


4. [Comment] is the technical analysis of market trends and technical support for trading strategies. 


5. [Supports and resistance] Supports are levels where the price tend to find support as it falls.

Resistances are levels where the price tend to find resistance as it rises. So, exit before the trend reverse.


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