For the past several years, gold has risen over time to the highs of $2000 while holding an average price of $1883 in 2022. In the last 3 months, price has been struggling as investor interest has huddled around the USD and risk-off currencies. However, there is a chance that this precious metal will be able to surge on weak dollar sentiment.
Pressures continue to mount on the dollar as inflation hits 40-year highs while the hawkish Fed stays the course of aggressive monetary policy. Since March, the Fed has been conducting monetary tightening to counteract the expanding consumer price index. But inflation is still out of control.
The central bank took even took measures beyond what economists originally expected. Rates flew past the 2% target while 25 basis point hikes in interest abruptly turned to 50 to keep up with the rising pace. The combative Fed is doing what they can to curb a devaluing dollar, but nothing seems to quell this upsurge. CPI keeps coming in hotter and hotter above forecasts.
Consumers are paying over $5/gallon on average at the pump as spending is forced to increase overall. This has been hitting the wallets of every day Americans and discouraging the amount of spending that was more prevalent in the years prior.
The number of layoffs in May increased exponentially compared to other months as the job market slows again. 17,000 new employees were laid off in May while 5,500 were already let go in the month of June.
From the image above, we can see a startling pattern forming within the last four to five months. The number of layoffs is increasing with each month suggesting a huge slowdown in the economy and a looming possibility of a recession.
The combination of surging inflation, higher interest rates and a slowing economy, the US as well as other countries have entered a period of stagflation which is neither good for the economy nor the dollar. This could be an indication to start showing some interest in gold.
Price could definitely surge in the coming months, and if it does, we might even see the metal climb well above the $2000s and may even touch $3000. This could also take lots of time for things to come into fruition, but we have an idea of how we want to approach the potential gold spike.
Position-Building Setups On Gold
Because of our long term outlook, we want to approach gold from a long term perspective. There are three levels/zones where we would consider picking up entry points to build our positions. The first PT is in the $1780s, the second is in the $1670s, and the third PT is much lower in the mid $1400s. We believe these levels to be key in gold's direction going forward and will be pivotal points that this metal could test should price dip lower.
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