Gold, at various times and to various degrees, has correlated with inflation. Inflation is most commonly measured according to the CPI (consumer price index), but since the CPI does not capture the effect of the prevailing interest rate we like to model inflation by comparing the CPI to the 2-year Treasury yield (CPI:2y T-yield).
The following two charts, show the Fed funds rate (FFR), gold price, and the CPI:2y T-yield ratio (inflation) during the great financial crisis of 2008-9, and during the recent and present pandemic induced recession.
On the charts above, notice how in both 2008 and 2020, the FFR dropped …stabilized…then dropped to the zero-bound where it remained. Notice also that both gold and the CPI:2y T-yield ratio (inflation) trended upward in 2009.
It would not be unreasonable to expect that, in the present situation, gold and inflation might behave in a similar fashion to 2008-9 where both trended higher(dashed-lines on the chart above).
However, when we pull back and look at the big picture (chart below), a question arises; with both inflation (CPI:2y T-yield) and the gold price at such extremes, is it possible that the market has simply compressed the 2008-2013 rally into a few months? If so, then gold and our inflation measure could be heading lower from here, like occurred between 2012-2015 . If not, then we could see gold double in price like it did in 2009-11 (chart below).
Technically, when the RSI of gold rises above the 80 level (red markings below), gold tends to retreat; like it has done since last July. However, the MACD has formed a bull-cross below the 20 level (blue markings below),which has correlated with rising gold prices in the past (chart below).
In the short-term, there is room for the momentum indicators to move higher, but there is resistance at ~1900 and then at ~1960. If that resistance can be overcome, then new highs are likely. But if not, 1750 becomes a possible target (chart below).
The dollar and reverse repo study supports the technical study in that gold has more up-side room left as the reverse repo/gold correlation drops back toward the mean (negative); for now, reverse repo and the dollar are dropping, while gold is rising. The dollar/reverse repo correlation is solidly positive, so if the reverse repo starts to rise, the dollar will too and gold will then tend to go down. (chart below)
In summary: Gold, the Fed funds rate, and inflation (relative to the 2y T-yield) are repeating the pattern from 2008-9, which implies that gold will rise over the next several years. Short-term, technically, and in relation to the US dollar/reverse repo market, gold is close to overhead resistance (1900, and 1960) which could cause a medium-term pullback to support (1750).
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Disclosure: I am/we are long GDX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.