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Markets and geopolitics suggest gold price is “breakout imminent”

markets

Fund manager Aalok Sathe writes for Glint on why he believes the “coiling” of gold against multiple currencies means a “breakout” in the gold price is imminent

The gold price has been “coiling” for some time and is due to breakout. This is something we’ve identified using the Hinde Capital Trend Index which measures the compression of moving average differentials over varying time periods or, put simply, the range of price movement within a certain time window.

We have found that it is one of the most reliable of tools to identify a price shift over the years. Low index readings signal the market is “coiled” and full of energy, so we should expect any breakout from the price range to keep going for a while: to “trend”. High index readings signal a trend is exhausted because the price is moving a lot and so the trend is ready to correct.

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Technically, with the gold weekly chart recovering from a long trough, the rising wedge pattern suggests an upside break is imminent and could be of significant time and length. Coupled with the fast deteriorating geopolitical situation and the precarious conditions in the stock markets, gold appears an attractive buy at this time.

Recently, gold has seen trend index numbers fall to 30, generally considered very low, and “trend ready”. But importantly, it is not just in US dollar terms, it is in every currency, which is relatively rare. Below you can see how the price range in Indian rupees has coiled.

gold india rupee

Source: Hinde Capital / Bloomberg

The chart below shows the gold price in Indian rupee terms and our gold “trend index”. The divergence wedge we’ve seen this year suggests an upward “breakout” is imminent.

trend vs IRP

Source: Hinde Capital / Bloomberg

The chart below shows how little significant price movement recently or “coiling”, has made gold trend ready (green) as opposed to exhausted (red) when it has previously moved a lot.

ir coiling

Source: Hinde Capital / Bloomberg

And the charts below show the same thing against the dollar and the pound – showing how gold is “coiling” against multiple currencies.

dollar coiling

Gold against the dollar is primed to move

Gold and the dollar are diverging suggesting a breakout

Gold and the dollar are diverging suggesting a breakout

Gold is diverging from the pound

Gold is diverging from the pound

Gold is ready to move against the pound following a steady price

Gold is ready to move against the pound following a steady price

Finally, there is one more thing to consider away from the market analytics: geopolitics. With a trade war looming, stock markets looking stretched and Russian and Western geopolitical intervention in Syria escalating, the “safehaven” of gold is looking attractive to investors. Now could be the perfect time to buy gold before it takes off.

Aalok Sathe is a fund manager with Hinde Captial 

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