Gold Prices Jump Up. (GC:CMX) Will Gold Breakout of Range Due to Inflation?

I know many readers are tired of me describing gold trading as a range between $1,700 and $1,800 on the low end and $ 1,800 on the lower side. I am neither a  “Gold Gold Bug” nor an anti-gold person. Gold has been ranging the last couple of years. That being said, we could be looking at a breakout for gold prices!

After gold dropped to its August 6th 2020 high of $2,069 an ounce, this pattern was formed in November 2020. Investors will ask the predictable question: “Fine, it’s there. What happens when the pattern turns upside down or down? What other options are there for gold? 

Here’s the good news. The range for gold is decreasing, even though it is still within the bound range. Although 5% swings in just a few days were not as common as last summer’s, this volatility has cooled. Although gold’s price moves up and down, the swings are closer.

Gold Prices Breakout
Gold Prices Breakout

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Gold Breakout? Price Issues

Now that inflation is rising, I think we could see a gold breakout. During the 1970s gold increased over 2000%! While the core bias remains at $ 1,800 an ounce, the bunched swings between $ 1,750 to $ 1,850 are closer (with a few exceptions). This is a 5.5% band, instead of the 11.0%. As compression continues, we are seeing a pattern with highs and lows. This technical pattern is called pennant because it looks similar to a sports pennant when you draw a convergent line through the highs/lows.

However, gold recently moved above the 200MA and broke through the R2. In addition, it has broken out of the Bollinger Bands.

A Pennant arrangement is for breaking out. Although an outbreak can happen in any direction, it is more common to see the outbreak following the pre-consolidation trend.

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It doesn’t matter if we look at the $ 1,685 price of March 30, 2021, or the $ 1,725 on August 9, 2021; it is obvious that this pennant was created in an uptrend. This indicates that the breakout will be upside-down and will happen soon.

This technical view is supported by a number of basic data. First, the actual price of physical bullion (at COMEX Gold Futures Contract Price) today is not $ 1,864 an ounce but is closer to $ 2,00 per ounce according to my gold bullion dealers sources. The difference in the prices is approximately 8%.

This pricing method has a problem. The average dealer commission is 2.5%. Any commission higher than this is not a commission. This is due to delivery delays, shortages, and other logistical problems in obtaining physical bullion. This means that physical bullion costs $1,925 an ounce.

Will Russian’s Gold Buying Increase Prices Due to Supply?

Russia is back in this game, which is the second important factor. Russia’s gold reserves have increased by 1,700 metric tonnes since 2009, as readers will be able to see. In 2009, gold reserves were 600 metric tonnes. Today they are 2,298.5 million metric tons. This is an increase of 283% in the past twelve years.

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Under President Putin and Elvira Nabibullina, the Central Bank of Russia pursued this acquisition plan steadily and incrementally. To avoid disruption in the market, gold acquisitions were made regularly at a rate of 5-30 metric tons per month.

The clock stopped in April last year. Russia decreased its holdings slightly in April and July, August and September 2020, and January and April 2021. In November and December 2020, the holdings remained the same, as in February, March and May, May, and June 2021.

Russia is now back on the purchasing side. He purchased 3.1 metric tonnes in July 2021, and the same in September 2021. Analysts shouldn’t forget that Russia bought this new purchase in a binge buying spree.

Russia has the most sophisticated hedging operations in the world, with its global reserve account for gold and hard currencies. The goal is to keep the gold reserves at around 20%. This goal was reached in early 2020. This explains why purchases were stopped later.

Russia’s oil prices are increasing and Russia’s reserves are fluctuating. Because oil is priced in dollars, this increases Russian dollar reserves. Russia will need to purchase more gold if its dollar reserves rise and it wants to maintain gold at 20% of its total reserves.

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