“This is gold, Mr. Bond!”

By Ron William, CFTe, MSTA

“This is gold, Mr. Bond. All my life I’ve been in love with its colour … its brilliance, its divine heaviness.” An infamous line from the antagonist Auric Goldfinger, in the illustrious Bond movie series by Ian Fleming, aptly personifies an appreciation of all things gold following its latest 10% surge. It has retested the $2k glass ceiling, amidst heightening geopolitical tensions, while also breaking historical macro correlations with real bond yields.

In behavioural terms, the yellow metal is reactivating a 13-year bullish pattern that visually resembles a “cup and handle” (C&H), where the cup is in the shape of a curved basing formation, symbolising trading accumulation, and the handle, which is typically marked by either a sideways or downward consolidation, that leads to the upside breakout signal. The C&H pattern, originally popularised by veteran investor William O’Neil in his classic 1988 book on technical analysis, currently signals a minimum price objective of $2,700, with overshoot risk into $3k (Figure 1). What makes this pattern of greater significance is that, if/once confirmed, it will reverse a previous widely acclaimed triple top signal, near $2070, that would have attracted much bearish consensus.

Broader upside scope for gold is evidenced by its rising tide across a basket of world currencies (XAUWCU). Its October monthly surge triggered a record new high breakout, that will likely extend the long-term uptrend by a further 80% (Figure 2).

From a macro perspective, this is ultimately a reflection of the accelerating currency debasement effect, weighed by ongoing restrictive monetary conditions and consequential secular inflationary forces ahead.

On this point, gold is sending out an interesting message, by its extraordinary divergence from real bond yields, thereby breaking a historical inverse correlation, of up to 91%, between gold and the yield of 10-year TIPS, during 2007-2021 (Figure 3).

There are several plausible factors, led by bullish market forces, supported by gold’s relative outperformance, geopolitical safe-haven flows and central bank demand. Charlie Morris, CIO of Bytetree, argues in his latest Atlas Pulse report that gold is likely experiencing a “transformational period”, whereby “TIPS are mispriced (too cheap) and understating inflation”. This aligns with our long-term structural inflation outlook, based on the Kondratieff wave. Interestingly gold remains a contrarian trade in the short-term, weighed by negative sentiment proxies, with headline news stories at decade lows, lagging ETF liquidity flows since 2020 and divergent mining stocks (Figure 4).

Looking ahead for plausible risk scenarios, it’s worth recalling gold’s historical rhyme, in periods of crisis, as highlighted in 1980 and 1973, which included the Soviet-Afghanistan War, Iranian Revolution and Arab-Israeli “Yom Kippur” war. In both analogues, gold typically spiked by up to 700%, while previously marking its inflation-adjusted peak near $2,700 (Figure 5).

The prospects of a commodity super cycle will offer broader support (Figure 6), notably the FAANG 2.0 industries, currently led by fuel, defense, and gold.

Thank you to all FSC members for all your kind feedback and insightful questions on our FSC blog series. Welcome more interaction on ron.william@cycles.org.

Ron William, CFTe Bio

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Ron William, CFTe, is a market strategist and educator/mentor with more than 20 years of experience working for leading macro research and institutional firms, producing tactical research and trading strategies. He specializes in global, multi-asset, top-down framework, grounded in behavioural technical analysis, driven by cycles based on the "Roadmap" signature model of veteran market technician Robin Griffiths, published in his book “Mapping the Markets.”

Ron also applies a "market & mind" approach at IntensiChi, using the latest techniques in behavioral-risk models and neuroscience sourced from expert groups. He further supplements with mentoring/coaching, trained by the International Coaching Federation (ICF), and teaches a regulatory approved masterclass in Applied Behavioral Science, with investment, private banks and CFA Societies.

Ron's primary work, as part of his current institutional market advisory firm (RWA), acquired global industry recognition as winner of “Best FX Research” in 2020. Financial media programs and industry publications regularly feature his market insights, including “Is the big cycle about to turn?”, predicting the 2020 crash and alerting the “Minsky paradigm” of 2020 H2-2022.

Driven by high-integrity education, Ron serves as part of the education committee of the International Federation of Technical Analysts (IFTA), Development Director at the Foundation of the Study of Cycles (FSC), Head of SAMT’s Geneva Chapter, and an honorary member of ESTA. He is also a visiting lecturer at universities, active guest speaker for the CFA, CAIA and CISI, and senior teacher at colleges offering an accredited diploma in trading and investing.