The inflationary indicator, Gold.

 

When I first got in contact with technical analysis, my teacher at the time mentioned the property of gold.

He maintained that it is an inflationary commodity, meaning that it will rise ahead of inflation. 

Things have not been great lately with all the warning of inflation. Malaysia for instance has the price of its chicken so un-affordable that it introduces restriction to chicken export. and price ceiling to chicken. 

Its decision of removing subsidies to cooking oil is not helping neither, causing the price of cooking oil to shoot up.

Things are not really getting better in Singapore neither, with price of daily necessities inflated. Coffee for instance increased by at least 10%, belly pork at a hypermart up fromSGD12:98 to 14.98, an increase of 15%. Not to mention chicken, which is affected by the Malaysian policy, up a whopping 35%.

So I figure that it is good to take a look at gold to see how bad the inflation is going to be.

Fig. 1 Gold weekly chart

For this study, I am using the chart I obtained from https://finance.yahoo.com. 

The chart on gold looks very interesting once it is revealed to me, because it looks to me like a top formation. It is also interesting to note that gold has been climbing since 2019 and yet it is only lately that we sense the effect of inflation. 

Jul 2020 was the peak of the gold before it began its descent. Even though the trend reversed at the beginning of 2021, its climb towards its second peak is more gradual and only ended a year later in beginning of 2022. 

I drew a trendline stretch from near July 2022 and noted that the trendline is prudent since it was tested 3 times before it was officially broken in July 2021. 

It looks as if gold is in process of a double top formation. To be frank, the formation is incomplete. It really depends on how gold will react when it touches the neckline, will it break or rebound when it touches the neckline at 1,674?

Since it started to descend at the beginning of this year, the gradient of its descent is steep as compared to prior trend, indicating momentum moving in this direction. I gather that it is highly possible that gold is going downward.

Using Fibonacci calculation, the most immediate support level is its projection support between 1,579 to 1,685. If it manages to break through this line of defense, the next line of defense is the expansion support between 1,289 to 1,436. 1,289 coincides with the double top objective.