Rational Roadmap For Gold And Dow In 2019

Thursday, May 2, 2019

gold analysis

Forecasting Gold Price

Based on my technical analysis and some fundamental observation, the price of gold has nowhere to go but up, likely to hit $2000/oz before the end of 2019.

Fundamental Observation

President Donald Trump loves glittering gold.  Just looking at his New York and Florida residences, all furnished with gold colors.  Politically speaking, if he wants to be re-elected in 2020, he will need help from the Federal Reserve.   He has tried to nominate two not-too-qualified personnel (Herman Cain who bowed out recently, Stephen Moore) to the board in order to prepare for Quantitative Easing (QE4).

Technical Analysis

Gold Price

The following 2 charts show the rationale for a rising gold price in 2019.

Chart 1 – Gold Profile

gold continuous contract chart

The gold price bottoms in 2016 and starts a slow climb since then.  This is supported by RSI and MACD momentum indicators and a general trend of increasing trading volume. From symmetry and cycle perspective, the rise of gold price will reach $2000 per oz by close of 2019.

Chart 2 – Ratio (Gold/Commodity) vs (T-Bond/Corporate Bond)

The above 2 ratio charts are modified from the analytical work of Steve Saville.  Our key observations are:

  • The 2 ratios are highly correlated (+0.92) and the their trends are generally rising with high volatility.
  • The year 2008-2009 is a demarcation line and marks the severe financial housing bubble and the subsequent Federal reserve of QE 1-3 implementation.
  • The ratios confirm the impending rise of gold price and general investor’s trend toward less risky assets.

DOW Index Price

Chart 3 -  DOW Profile

The rise of Dow index relies solely on Quantitative Easing since 2010.  Recently there is some Quantitative Tightening and President Trump does not like that at all.  He wants to resume QE4.  He understands that this is the only way to get re-elected. 

Chart 4 -  DOW Adjusted by Volatility Index ($VIX)

DOW index generally rise under low volatility ($VIX) index.  We construct a ratio of DOW to $VIX as a leading indicator to warn us of sharp drop in DOW index.  That is, with rising volatility, DOW will start to fall, as indicated in the above chart.  The ratio leads in decline by about one year.

Conclusion

In this article, we put forward a rationale roadmap of rising gold price and declining DOW index in 2019.    We cannot ignore of President Trump’s 2 mantras for his re-election in 2020:   

  1. Keep US Military Strong (>700B a year!!)
  2. Keep DOW Climbing (?!?! How??)

Short of a Miracle, roadmap scenario just described above will enfold.

The Eternal Truth

“You reap what you sow” Galatians 6:7

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F.T. Dao is a private investor and recently left the corporate world for technical analysis of stock markets.  He holds a PhD degree in physics and has done technical analysis of the market on the side for many years.  He welcomes constructive discussion and can be reached at:  ftdao245@gmail.com  ,ftdao245@comcast.net