2021-12-18 Gold Analysis

18 gru 2021

Gold/USD ("Gold")
US 10 YR Nominal / US 10 YR Breakeven ("Real Rate")
US 10 YR Nominal ("Nominal")

Typically:
Real Rate increase = Gold decrease
Real Rate decrease = Gold increase

Gold needs sharp drop in Real Rates to move catapult higher
- Higher inflation expectations with decrease in Nominal Rate
- Lower inflation expectations with decrease in Nominal Rate

Q1-Q2 2022 Outlook
- Accelerated Tapering from Fed + other central banks ended QE + some rate increases
- Government stimulus payments reduced + fiscal spending still under negotiation
- Continued supply chain bottlenecks and potential for more lockdowns early in 2022
- Inflation rate on durable goods needs to overcome large base effects (imo unlikely)
- Inflation in service sector will be negatively affected by drop in demand due to potential lockdowns in early 2022
- Energy price increases dependent on reduction in demand from potential lockdowns
- Bank credit creation has stagnated for months
- Chinese real estate sector credit problems are still not resolved

I'm hopeful gold can hold up during Q1-Q2 2022 despite the aforementioned backdrop. Real Rate and Nominal could rise 0.25% to 0.5% and take gold to a trading range of $1,700 to $1,650.

Upside for gold looks limited unless Nominal and Real Rate decrease by 0.25% to 0.5% allowing for an increase in gold between 6%-12% ($1,900 - $2,000).

Therefore need to keep a tight leash on gold and adjust position sizing on any long entries in early 2022 to say 50% of risk normal risk per trade for new entries. If it moves higher add into strength but with limited adjusted position size.

If gold gets down to $1,700 and $1,650 position sizing on new longs from that point forward could be increased to normal risk or slightly more depending on circumstances at that time.


Dec 2018 - Aug 2020
Gold $1,250 - $2,000
Gold % increase = 60%
Real Rates decreased 3% to 0.4% = 2.6%
Nominal decreased 2.85% to 0.4% = 2.45%
Gold 24% increase per 1% decrease in Real Rates

Sep 2020 - present
Gold $1,950 - $1,675
Gold % Decrease = 15%
Nominal 0.4% to 1.75% = 1.35% increase
Real Rates 0.4% to 1.4% = 1% increase
Gold 15% decrease per 1% increase in Real Rates

Current Band
Real Rates 0.75% to 0.25% = 0.5% range
Nominal 1.75% to 1.25% = 0.5% range
Gold $1,675 - $1,910 = $235 range or 13% change

When Nominal was in 1.75% to 3% range (1.25% delta)
Real Rate was in 1% to 1.5% range (0.5% delta)
Gold was $1,050 - $1,350 = $300 range or 30% change
Nominal not likely to rise much above 2% so not expecting such a large trading range may 15%.

When Real Rate increase 0.75%
Nominal Rate peaked at 3% from 1.5%
Gold dropped 33%+
Unlikely since peak Nominal will likely be 2.25% imo