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Did GOLD Start To Lose Its Luxury Taboo?Oct 3, 2022

Did GOLD Start To Lose Its Luxury Taboo? Technical analysis for GOLD versus SP500 and GOLD weekly chart from Elliott wave perspective.

Always till nowadays the most dream scenario for gold was an unstable economic recessionary environment like a pandemic, 8% inflation in America, and a war in Europe. But times are changing. Even though its price reached $2089.2 in August 2020 at an all-time high, it is not the first and only hedging tool that large institutions are using. The reason is that if we had invested 10 years ago in the S&P 500, we would have almost 3 times more money now. In comparison, an investment in Gold would return -5.4% in the same period, and maybe the next decade will be lower. Why is that happening? Is gold inflating?

A quick answer would be yes. Because the dollar appreciated during this period against all currencies, Central Banks printed more than needed money, and lastly, the miners are extracting more gold.  

Did GOLD Start To Lose Its Luxury Taboo? SP500 vs. GOLD Chart
SP500 vs. GOLD Chart

According to the World Gold Council, the annual supply approaches 205,000 tons which means an increase of 26% since 2010 and a worth of $11 trillion. If we consider that the world population had an increase of 14% in the same period and will continue to slow down, then it is logical to say that fewer people must buy more gold. The other obvious issue is that gold doesn’t produce anything compared to bonds, corporate earnings, or even farmland and real estate. That said, is more interesting to invest in commodities like corn, sugar, soybean, or cocoa.

On the other hand, gold will retain its luster if we have hyperinflation, a wider fashion industry, and social disturbances across the planet in which its demand will be increased dramatically. Therefore, from an Elliot Wave perspective let’s examine its weekly chart.

Did GOLD Start To Lose Its Luxury Taboo? GOLD Weekly Chart
GOLD Weekly Chart

Between 2011 and 2019, gold moved in a sideways triple corrective pattern, and thereinafter it rallied to an all-time high at $2089.2 The basic scenario suggests that gold is now pulling back into wave (II) or alternatively even wave IV; but in both cases we think that support is not far away. Remaining pessimistic on the global readings of persistent increasing inflation, high energy prices, high cost of consumption, and high cost of debt, we believe that gold will be the shelter that always has been in bad economic times.

by Grega Horvat and Stavros Chanidis

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