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Gold - Technical Analysis

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ESI Analytics Limited


  • Gold appears to be an attractive investment during the next few years.
  • A cyclical trend reversal may have occurred in mid-August 2018.
  • Macro conditions rather favor liquidity flows into gold than out of it.

We concluded on November 1st, 2018 that gold appears to be an attractive investment during the next few years. That assessment remains by and large valid. The technical picture is close to confirming a short-term trend to the upside.

Gold gained roughly 7% from its mid-August low. Price action unfolded a relatively weak and choppy upside trend, which is depicted by the pale blue channel in the very first chart below. We concluded on November 1st, 2018 that "price action is likely to unfold to the upside if $1,240 gets crossed up again". That assessment remains valid. Taking out the previous high opens the door for an attack on the $1,260 figure. This price action transforms the entire swing from the mid-August low into a motive wave. A motive wave gets most often followed by at least another motive wave into the same direction within the Elliott Wave framework. It is most likely the case within the distinct setup for gold at this stage.

Gold Elliott WaveSource: Tradingview.com

The precious metal is very close to surpassing $1,240 to the upside. It approached the figure on increasing momentum as we write this article. Increasing momentum is most often a useful hint for more price action into the direction of the trend. Hence, gold will probably unfold a bullish motive wave eventually. A motive wave at this junction is the next piece of evidence that a cyclical trend change occurred at the mid-August 2018 lows.

The ingredients that started cyclical trend changes historically may also add up today. Sentiment readings were depressed throughout the entire precious metal spectrum during the past few months. The chart below shows the latest CoT data. The CoT report outlines how different types of traders are positioned in the futures markets. Speculators were significantly underweight gold lately. They are likely to change their stance

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ESI Analytics Limited profile picture
ESI Analytics is an independent investment research firm with a focus on evidence-based investing.We have a best-in-class track record in originating actionable investment ideas. Those can be implemented standalone or together as a tactical asset allocation.ESI Analytic’s core product is a portable overlay. It is delivered as a derivatives-based model portfolio to institutional clients. Seamless integration to their existing portfolio structure improves their risk-reward in a Markowitz efficient frontier context. Individual clients can access an ETF model portfolio that replicates the institutional overlay extensively. Therefore, sophisticated individual DIY investors can benefit from an all-weather model portfolio designed to function in all market conditions. The decision-making process behind all ideas is multidisciplinary. It combines macroeconomic research expertise with behavioral finance and technical analysis. Our research and model portfolios can be accessed on scienceinvesting.com.  Robert Lefter founded ESI Analytics. He has more than 20 years of professional investment experience and is the CIO of ESI Capital, a registered investment adviser.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

This idea was distributed to our clients on December 5th, 2018

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