Gold has long been seen as a safe-haven investment, and its relationship with the stock market, especially the S&P 500, has proven pivotal in predicting its next moves. Patrick Kim, a renowned analyst, offers valuable insights into the current gold market, the critical role that money flows play, and where future opportunities might lie for investors.
The Current Gold Market: Riding the Waves
The price of gold has been stretched since April, significantly deviating from its 36-month moving average. While this doesn’t signal an impending collapse, it does suggest that the best entry points for investors were when prices were closer to their moving averages. The gold-to-SPX (S&P 500) ratio is showing signs of weakness, but we are far from reaching the end of the “golden bull era.” As Patrick points out, the golden bull era begins once gold breaks out against the S&P, and that’s still yet to happen.
A Shift in Market Dynamics
As money flows return to the S&P 500, gold’s performance is being impacted. Since April, even as gold has outperformed itself, it’s not been an ideal low-risk entry point. This market behavior is still evolving, and investors should remain cautious until the situation clarifies. A correction, as is typical with gold’s market cycles, is necessary to allow the moving average to catch up and reset.
The Bullish Correction: Patience is Key
Gold’s market trajectory often follows a series of corrections before any significant breakthroughs. In previous cycles, after gold’s initial surge, it’s common to see a sideways consolidation or pullback to lower levels. From a technical analysis perspective, these corrections provide excellent entry points, mainly when the price exhibits a coiling pattern, indicating an imminent breakout.
However, it’s essential to remember that not all market corrections result in bullish outcomes. Some corrections evolve into bear markets, and investors need to remain alert and patient. Currently, gold is in a correction mode, but there’s a high probability that it will re-enter a bullish phase after the reset.
Market Resistance and Support: What’s Next for Gold?
Despite the pullback, gold remains above its long-term support levels. While there’s no immediate “buy” signal yet, the chart suggests that a further correction could push the price of gold down to levels closer to its 12-month moving average. A key support level to watch for is around $3,400. If that level holds, a rebound could follow, providing a favorable entry point for investors.
If the price falls further, it could test deeper support levels around $2,700. But the key takeaway is patience. As frustrating as it may be, waiting for gold to reach an actual low-risk entry point could lead to significantly higher returns over time.
The Bigger Picture: Gold vs. S&P
One of the most significant insights from Patrick’s analysis is the relationship between gold and the S&P 500. While gold tends to move in tandem with the stock market, it is crucial to monitor the gold-to-S&P 500 ratio. Gold does not move independently of the S&P; it usually follows the market in sync but with greater intensity during specific periods. When the S&P reaches its highs, gold typically peaks shortly before; however, when the stock market experiences a correction, gold tends to outperform.
This dynamic means that, for gold to shine truly, the S&P must first begin its decline. Historically, gold tends to outperform when the S&P is in a sideways or declining phase, but once the S&P breaks out of this pattern, gold’s bull run typically ends.
The Path Forward: Expectation for Higher Gold Prices
Despite the current market correction, Patrick remains optimistic about the future of gold. Using historical analysis, he estimates that gold could reach prices as high as $10,000 once it breaks out against the S&P, based on previous market cycles in the 1970s. This price target isn’t arbitrary but grounded in past performance patterns. However, it all hinges on the S&P first reaching a peak and then breaking down. Gold will follow that trajectory closely.
Gold’s Role in the Broader Market
Gold’s performance also correlates with other commodities, including silver and oil. Historically, these commodities have tended to trend upwards when the stock market is under pressure, and the same could be true for the upcoming years. The destruction of purchasing power and inflationary cycles could provide the catalyst for another surge in precious metals and commodities.
In short, while gold is currently in a correction phase, it’s not the end of its bullish era. Investors should remain vigilant, waiting for key technical signals and low-risk entry points. Once gold’s price stabilizes, the potential for significant returns will become clear.
This article is based on Patrick Kim’s insights and the broader trends shaping the gold market. If you’re keen on staying ahead of the market, it’s crucial to follow these trends closely and make informed, timely decisions.
