Looking at the multi-year chart for Gold, we can see how it went from bullish years in Green to bearish years in Red during which it was sideways for the better part of 6 years , then from 2019, we went into a bull uptrend.
Notice that once the longer term trendline is broken in the first green box, the bull market was just about over. Now we are close to the first upward trendline but still $100-120 before we reach the second trend line. If we break that second trendline, it won't be good for Gold.
The positive from the chart is that we are only 2 years plus into this current bull market whereas the previous one lasted 4 plus years.
So we could see Gold going either way - break the trendlines or progressively move away and break new highs into the months ahead.
So lets see a few scenarios
Scenario 1 1. Goldilocks economy
Under this scenario, the assumption is that the Biden administration is able to revive the US economy without overheating it, so US GDP would surpass everywhere else except China without material rise in inflation. And the Fed maintains interest rates low for longer. Real yields will drop back or no longer present itself as a threat , USD moves back lower and the equities market perform well in the year. This scenario favours equities and the AUD, so Gold could rise in tandem with equities but AUD Gold may curb the rise.
Scenario 2 2. Interest rates stay pat, Inflation rising
Under this scenario, we see long term bond yields continue to rise with modest increasing inflation but long term rates/yields rising faster than inflation, in other words real yields rising fast, but economic recovery is tepid such that the Fed continue to maintain short term rates as they are. This is the present concern, which sees a rising USD and correspondingly lower Gold while stocks face volatility for some time to recalibrate against longer term duration stocks and overvalued stocks.
Scenario 3 3. Stagflation
Under this scenario, inflation skyrockets but economy stalls , the Fed unable to hike rates significant without jeopardising the economy but inflation is a clear and present danger and it gets high enough that the Fed would have to hike rates high enough that stocks get very uncomfortable and the stock bubble burst. Real interest rates gets into negative territory driving Gold into a resurging bull and the USD savaged.
