Turnaround Tuesday: Why the gold price correction is coming to an end

by Markus Buler, Euro on Sunday

Bimpressive! The price of gold came under significant pressure at the start of the week, even briefly falling below the $1,900 mark on Tuesday. However, at $1,890, the Bears’ spring fever ended and a strong intraday turnaround ensued. From a technical point of view, this has created a swing low. The confirmation is still pending. But such a swing low can represent a trend reversal signal in the chart technique.

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Correlations not verifiable

Certainly many are writing off gold now that the stock markets are in demand again. However, correlations such as “strong stock market = weak gold price” cannot be proven historically and mislead investors.

This shows the recent past. Analysts repeatedly claim that the price of gold cannot rise when the dollar is strong. However, gold’s recent rally towards all-time highs has come with a strong dollar. The dollar index marked a cyclical low of around $89 in June 2020 and most recently climbed to over $99 – during the same period the price of gold jumped from around $1,880 to a peak of over $2,000.

A similar correlation that’s been tried again and again: “Gold can’t go up when US yields go up.” This statement is also proving to be unreliable, as the recent rally has shown. Yields on 10-year US bonds have doubled to around 2.5 percent since the low of 1.25 percent in August 2021. During the same period, the price of gold has risen from $1,700 to around $1,950. This correlation, too, has been debunked for what it is: a myth.

Chance of a new all-time high

Correlations are deceptive, even the obvious ones. Gold is surrounded by a few such myths, few of which prove resilient. However, what does not lie is the chart. There are technical models that work on a cycle basis that have suggested more of a bottom for gold in early to mid-April. The swing low at the end of March came a little too early. However, such models have a certain temporal variance. The bulls have built a bastion down to the $1,840 breakout level which they will attempt to defend. The correction that was overdue after the previous rally should be coming to an end. In fact, Tuesday’s swing low may already have marked the bottom. On the next rise, the bulls have a chance to break the all-time high.

Investors who want to play such a potential increase can do so with Xetra-Gold (WKN A0S 9GB) to do. The ETC is legally equivalent to physical gold to a large extent.

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Image sources: Pics-xl / Shutterstock.com, Eric Chiang/123rf