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Gold trading plan

July 2, 2020

July 2, 2020

Global gold price forecast and analysisMikhail Hypov

XAUUSD: fundamental analysis, structure, and changes in the gold

market supply and demand, Elliott wave patterns, relevant trading scenarios for gold in the middle-term, and through the end of 2020.

Dear friends,

My previous article was devoted to the valuation method G35, which suggests the conversion of the asset price to the natural expression of the gold value at the time of the US gold standard (see the article [here][1]). I explained the principles of this trading method and major trading signals. I stressed the importance of analyzing the gold market and inner market factors of gold performance. This article will deal with the analysis of the [gold][2] market sentiment, I will also present my forecast for the next few weeks, months, and even years and gauge the gold market state in general.

Fundamental analysis of the gold market

The data for the analysis are taken from the World Gold Council research (the link to the original source is [here][3]), this organization aims at developing the [gold ][2]market.

![LiteForex: Gold fundamental and technical analysis. A relevant gold trading scenario through the year’s end and further outlook. Gold trading plan.][4]

According to the company’s research data, the gold market structure has significantly changed in the first quarter of 2000, compared to the same period in 2019. The change resulted from the drop in the industrial demand for gold by almost 25%. The decline in the demand was first of all caused by lower jewelry consumption. However, the damping effect was produced by increased demand for gold ETFs and similar investment products. As a result, the total demand for gold was a little up in the first quarter, by 1038.1 tonnes or 1% of the total world gold consumption.

In the joint study of The World Gold Council and Oxford Economics, Global Risk Survey for 2020, the experts suggested the following scenarios:

  1. The global economic downturn (basic scenario)
  2. The economic recession in the USA
  3. The deep downturn in China’s growth
  4. Economic stabilization and potential expansion of emerging markets

The research shows that the demand for gold at the end of 2020 could exceed last year’s consumption due to an increased demand for investment products associated with [gold.][2] However, the investment component is a rather volatile value. Besides, the growing demand for gold is satisfied by the increase in gold production an average of 2.4% per year, as well as an increased supply of gold from the secondary market suppliers of scrap metal. The growth in this sector in the first quarter amounted to 42%. I can explain this phenomenon by the increased demand for pawnshop services in the face of rising unemployment and lower incomes.

The emerging markets are expected to start recovering in 2021, which should increase the industrial demand for gold. The jewelry demand should be also recovering. However, there is expected a sharp drop in the demand for gold as an investment and risk hedging instrument. Besides, experts warn about a possible tightening of the monetary policies of world central banks in 2021 and the next years, which should weigh on the gold price. In general, experts suggest a decline in both the supply and the demand for gold to the pre-crisis levels already in 2021. The demand will decline first of all because of a contraction of the speculative demand for gold, and the total supply will drop because of a sharp decline in the gold supply form the secondary market.

The major conclusion, which is interesting for us according to this research, is that the expected [gold price][2] change from 2020 to 2024, when calculated from year to year, will be negative, around -6.14%, while a long-term, fundamental outlook for the average growth (at the horizon of +30 years) for the year is positive, at around 4.59%.

What can we conclude from this research? Fundamentally, the growth of the [gold ][2]price results only from the multiplied speculative component of the gold demand. The growth of the total demand for gold is not significant, and it is compensated with an increased supply. There is no deficit in the gold market and it will hardly occur. So, there are no fundamental reasons for the significant gold price rise over the next few years.

Gold price technical analysis

Now, let us study the gold price chart using technical analysis and check if it corresponds to the outlook suggested by the experts, which I presented in the fundamental analytics section.

![LiteForex: Gold fundamental and technical analysis. A relevant gold trading scenario through the year’s end and further outlook. Gold trading plan.][5]

The above chart displays the [XAUUSD][2] with a 12-month timeframe. The gold historical data are not full, it starts in 1975. We have already discussed the history of gold pricing, and you know that the gold standard was abandoned in August 1971. Remember, according to the US gold standard, one troy ounce was pegged to $35.

So, I will start the analysis of global wave cycles from that date, taking into account that historical event.

Having arranged the Fibonacci grid, we see that the third wave of the Supercycle exceeds 1.618 of the first wave but fails to reach 2.618. In general, it is a quite typical condition, so we cannot say that the third wave is extended. Therefore, the impulse wave 5 of the Supercycle could break though the high made by wave 3, at 1920 USD per troy ounce.

![LiteForex: Gold fundamental and technical analysis. A relevant gold trading scenario through the year’s end and further outlook. Gold trading plan.][6]

According to the Elliott wave theory, the fifth wave has a few targets, it can retrace the third wave from 0.382, in case of a truncation, to 0.618 if wave 5 is normal. As you see from the above chart, the [gold price][2] has already reached the target suggested by the fifth wave truncation scenario. The next target is at 50% of the third wave. This projection doesn’t reach 1900 USD per troy ounce. The Fibonacci level of 0.618 of the third wave is at level 2076.65 USD. As this level is quite close to the psychologically important level of 2000 USD, we should consider this factor when setting the growth target. Taking into account the gold price fundamental analysis data, the current market rise is of purely speculative nature. It means round numbers will be especially important, these levels should create a strong resistance to bulls.

![LiteForex: Gold fundamental and technical analysis. A relevant gold trading scenario through the year’s end and further outlook. Gold trading plan.][7]

To find out the development limits of the fifth wave of the Supercycle, let us study the smaller waves within the fifth wave. It is clear from the chart that there is likely to be developing wave 3, based on the wave structure (see the blue formation). This wave has already reached the target, and the further rise will be rather difficult.

![LiteForex: Gold fundamental and technical analysis. A relevant gold trading scenario through the year’s end and further outlook. Gold trading plan.][8]

In the above chart, I tried to define the sub-waves within the third wave, which is blue. This is the five-wave formation that has been almost complete, where the fifth wave is about to finish, which is indicated by a strong overbought state, divergence with the TD ROC, and the advance beyond the yearly candlestick limits. The fifth wave has already reached its target at 0.618 Fibonacci level of wave 3 in the red pattern. These multiple bear signals mean a potential correction down in the fourth wave in the weekly timeframe.

![LiteForex: Gold fundamental and technical analysis. A relevant gold trading scenario through the year’s end and further outlook. Gold trading plan.][9]

The scenario of the future gold market correction is outlined in the chart above. The down move will hardly be below 0.382 of wave 3 of the blue formation. At the same level, 1563, is the border of the Tolerance zone according to Thomas DeMark, which makes this level stronger. Besides, there are support levels within the traded zone of 1550 USD - 1450 USD per troy ounce.

![LiteForex: Gold fundamental and technical analysis. A relevant gold trading scenario through the year’s end and further outlook. Gold trading plan.][10]

If we presume that the third wave will create the low at 1563, the target for the fifth wave, being around 0.618 of wave 3, should be at the high of the third wave of the Supercycle, which is at level 920 USD. Therefore, the all-time highs will hardly be broken through.

Gold trading plan

![LiteForex: Gold fundamental and technical analysis. A relevant gold trading scenario through the year’s end and further outlook. Gold trading plan.][11]

As for the short-term gold trading strategy, it is relevant to enter short positions at the current levels. A stop loss should be above level 1800 USD, and the profit targets for the corrective wave are around the level of 1616.

The reward/ratio for this trade will be more than 3 to 1. Please do always correlate this information with your personal trading strategy and follow your own risk management system, do not forget to correctly determine the entry volumes. You can enter a short trade here, with the LiteForex broker. If you haven’t yet joined the LiteForex trader team, it is high time you did! LiteForex is [raffling][12] fabulous prizes to celebrate its 15th anniversary.  Both beginner and professional traders may win!

As for the long-term outlook for the [gold ][2]trend, the gold prices will hardly break through its all-time highs. The fifth wave of the Supercycle is likely to complete in late 2020 – early 2021, which is suggested by fundamental factors, including the withdrawal of the speculative money from the gold market. In my next articles, I will present a wider [gold price][2] outlook, based on technical analysis and the global gold market correction.

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I wish you good luck and good profits!

P.S. Did you like my article? Share it in social networks: it will be the best “thank you” :)

Ask me questions and comment below. I’ll be glad to answer your questions and give necessary explanations.

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  • Telegram channel with high-quality analytics, Forex reviews, training articles, and other useful things for traders

Price chart of XAUUSD in real time mode

![Global gold price forecast and analysis][15]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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  1. www.liteforex.com/blog/analysts-opinions/g35-asset-valuation-method-through-the-example-of-sp500/
  2. my.liteforex.com/trading/chart?symbol=XAUUSD
  3. www.gold.org/goldhub/portfolio-tools/gold-valuation-framework
  4. cdn.liteforex.com/cache/uploads/blog_post/cryptocyrrency/hyipov/2020.07.02/GOLD_hypov_1.jpg?w=30&s=78013d724d7c5566cefd3a05fb6df05b
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