Gold: The beginning of a secular bull market to US$1,920

THE bull run on gold is only taking a breather for now. There has been an aggressive sell-off in gold in the past few weeks due to the new hawkish language from the Fed over plans to unwind its balance sheet reduction.

We are unfazed by this. The tightening of the Fed's monetary policy should not hinder the current secular uptrend in the long run.

Gold follows a long-term cycle of approximately every eight years. It forms a cyclical low in between eight years. Each cyclical bottom is followed by a raging bull market where the secular uptrend lasts for three to four years on average.

For example, the cyclical bottom in March 2001 took eight years and one month to form, and the subsequent bull market in gold resulted in a handsome 305 per cent gain.

The next cycle happened seven years and seven months later in October 2008 where gold ended up with a substantial 182 per cent bull rally.

If the eight-year cycle holds, using the most recent cyclical bottom in October 2008 as the guidepost will point towards October 2016 as the next cyclical bottom.

However, with the benefit of hindsight, we can deduce the December 2015 low of US$1,062 to be the cyclical bottom for the current cycle. In other words, this cycle took seven years and two months to form.

By scrutinising deeper, the December 2016 low of US$1,153 provides a better fit for the eight-year period as this cycle took eight years and two months to finalise.

Simply put, we are expecting the US$1,153 December 2016 low to hold for the cycle to play out. Alternatively, if the US$1,153 support area fails to hold, the next critical level to watch will be the US$1,062 December 2015 low for the new bullish cycle to stay valid.

We are expecting the current secular bull market in gold to last for the next three to four years to target the US$1,920 all-time high in 2011.

As the war drums from the Korean Peninsula beat louder with North Korea testing two more intercontinental ballistic missiles in July, the geopolitical tension continues to stay elevated globally.

As a result, gold should continue to experience the tailwinds from the ongoing escalations with the safe haven status.

Some near-term levels to watch are the US$1,300 resistance area on the upside and US$1,200 support area on the downside.

Once the US$1,300 is breached to the upside, the next wave of buying should begin for the price to search for the US$1,367 resistance area.

Disclaimer: Chartpoint is provided by Phillip Securities Research for information only and should not be construed as investment advice.