Fundamental Forecast for Gold: Bullish

This title is a line taken from Shakespeare. He actually said ‘all that glisters is not gold,’ but ‘glisters’ was the word for ‘glitters’ in the 17th century, so the saying has held while the English language has evolved. But this line is relevant to the Gold market right now: The line was in reference to the fact that not everything that appears great turns out to be that way. As humans, we get excited and we have a tendency to overvalue things. We’re riddled with observation biases that make us think that the success of today will most likely happen tomorrow. But this is incorrect, right, because if history always predicted the future then nothing ‘new’ would ever happen.

Instead of looking at the past to merely allude to what may happen, we can use the events of the past combined with relevant price movements in order to see what’s driving a market and what may happen in the future when we plan for various scenarios that might actually take place.

That’s what makes Gold so utterly exciting right now. Recent price action has been extremely bullish, and that can be helpful for picking a continued up-side bias; but it’s the reasons for Gold’s recent rise of bullishness that make the prospect of further top-side moves enticing.

There are only so many places in this world for capital to flow. Under the mattress isn’t a very relevant option, and most Central Banks around the world are actively embarking on policies designed to deflect capital flows. Europe has been on negative rates for nearly two years now, and Japan made the move to negative rates last month. This made the US Dollar an operable candidate for capital flows. If a bank held reserves at the Central Bank in Europe or Japan, it was a very logical decision to just direct that cash to American branches in order to place it on deposit at the Fed. As the Fed was looking at higher rates while also being one of the few major central banks actually paying interest, this drove considerable capital into the Dollar.