Gold Macro view and our strategy for the next 6 months:
We have been looking for every reason for a bounce in gold due to our fundamental bias in gold. None of the long ideas has worked out so far. But we have managed our risk accordingly. We have been in and out of gold stocks strategically. But there comes a time when the sell off offers us an excellent opportunity for an Asymmetric trade idea. All we need is a few of these asymmetric ideas and we can beat most people even if we make many mistakes. We do believe that at current levels from a technical and macro-strategy perspective gold will give us a great risk reward ratio trade in the next 6 weeks. Having said this, we are already long on some gold miners but we will increase our positions if our idea works out. we will compare price action and see if that confirms our idea and as long as the price action does not invalidate this idea, then this analysis holds true and we will follow this strategy accordingly.
We are starting with the daily chart. We have underlined our ideas several times in our previous posts. Although last time we were looking for price to go up looking at the chart now gives us a different view. We are in consolidation above an important support level. the price has formed a relative equal low from the price action from November 2026. So we think that price is going to create a false bottom then the price will be moved aggressively down into the support zone. This create panic among those already long and also induce bears to take shorts.
Once they have have stopped out most of the longs, they will move the market aggressively in the opposite direction and taking out $4200. This will stop most of the bears out and will also confirm a bullish transformation in the gold price action and after that we can enjoy some easy price action. We have had a tough 6 months since January of this year.
They can also do a ‘Double Purge’ . Here the price is broken out of the range ( False move above 4200) and induce buyers to increase position and then the price is moved aggressively down into the support stopping out the longs and inducing short positions. The price is then moved back above $4200 stopping our the shorts. So both the Longs and the Shorts will be stopped out. So if price breaks out above $4200, we will be cautious of our long enteries and if price shows weakness, we will close those positions and take losses early expecting the double purge.
The other option is to wait for price to be manipulated down into the support and enter long. This will give the Lowest risk reward ratio trades and will be an asymmetric bet on gold. However price can continue higher without coming into the support zone ( See our last gold post). We have to be comfortable managing uncertainty and we do not know all the dots and as things come clearer we need to react to it. Anticipate and react. Developing anticipation and reacting is all about practise and we can never get it perfectly right. That is the uncertainty.
Gold has always had an inverse relationship with oil and the yields. But we can have correlated periods and uncorrelated periods and it is important to understand which regime we are in to take advantage of this.
Let’s look at what happened in 2022, when Russia invaded Ukraine. Oil prices spiked and the yields spiked with it. Although Gold was considered as a safe haven asset, it sold off See the period from Mar 2022 to Oct 2022. Yields were rising and gold was falling. we are in the current regime. Now after october 2022 onwards, the gold started to rise and was rising inspite of the rising yields . This is the uncorrelated period. We will be looking for something similar on gold. At some point of time in the near future, gold will lose its current close correlation with oil and the yields. But we do not know when. This is the uncertainty and we continuously monitor price action to correlate our ideas with those of the market makers.
Why we believe that gold will continue to rise:
China continues to buy gold and they have increased their buying after the fall in gold price
The debt of the dollar system countries are unsustainable at higher levels
The dollar system countries will cap the real yields.
Current financialised economic structures need the debt bubble to keep growing otherwise the whole house of cards will collapse.
M2 money supply has a broad correlation with gold and M2 money supply will increase with the debt bubble
The US cannot devalue itself against the dollar system countries as this will mean that these other countries will have a deflationary bust. So the only way out is to inflate dollar against gold and other assets.
Here is the weekly chart of gold vs the 10 year yield. The 10 year yields peaked in Jan 2025. Gold was $2800 at that time. Also as we peaked, gold started to move higher and even though the 10 year yield was relatively elevated gold price continued its ascent. We have a similar situation now. We have disruption of oil supplies from the Middle East and we also have Russian oil infrastructure particularly the refining capacity being destroyed. As oil rises, there will be demand destruction and increased production from other sites like the permian and Canada. So oil might peak soon. But we do not know how high it will go. Whatever the case, back in 2008, the collapse happened because of the leverage in the financial system which put pressure on the mortgates as the interest rates rose. We hope the ECB would have learnt their lesson, when Trichet famously raised rates 1 month before the collapse.
Nothing matters more than price action. We should always be guided by price action even if our views are contradictory to the current price action. Anyways this is the 4 hour chart of gold. You can see a market maker price action model. The ultimate goal of the market makers in this assumption is the support zone. If you see earlier in January, we had a double purge before the move down. We may have a double purge again. And we are going to follow our strategy if a double purge does happen. But we always have a core position in gold miners.
We hope this was insightful. This is a brief review only and a more detailed view will follow in the coming months.
