In this case study we illustrate how the VecViz’s Dashboards, can improve understanding of and provide fertile material for dialogue related to a price forecast by (1) placing the forecast in the context of the strongest historical price channel trajectories (i.e., Vector Sets) supporting it, (2) providing related probability estimates, and (3) allowing for efficient exploration and consideration of other outcomes, including opposing outcomes, on the same basis. We also provide V-Score perspective on GLD, including closest chart shape analogues.
Goldman made (or reiterated) a bullish call on gold last week
There is a posting on Goldman Sachs’ (“Goldman”) “Insights” page dated September 12th noting that their research team forecasts Gold was likely to reach $2,700/oz by early 2025. That would be an increase of 7.4% from the prior day’s (9/11/24) close. Please read Goldman’s note for more detail on their thinking:
https://www.goldmansachs.com/insights/articles/gold-prices-forecast-to-climb-to-record-high
To avoid any misinterpretation, these comments from Goldman may have been a re-iteration of an earlier forecast as opposed to a new forecast. See link below that is dated April 15th, that provides the same $2700 target from Goldman. Please know that we do not have direct access to Goldman’s research, nor have we spoken to any analysts from Goldman about this forecast, so we don’t know when they first made this call, we only have access to public reports about it, and only via major search engines.
VecViz does not currently provide VecViz analytics for gold bullion prices, but we do provide analytics for the GLD etf. However, using some simplifying assumptions we estimate that Goldman’s forecast translates to ~ $249.50 on GLD by early 2025, an increase of 7.4% and from GLD’s close of $232.25 on 9/11/24 (and bullion’s 3pm Mountain time level on 9/11/24 of 2513.351.)2.
We are not aware of any price forecast Goldman may or may not have for GLD. In the comments below we discuss our translation of the aforementioned forecast Goldman discussed last week for gold bullion, which we have independently translated to GLD’s price scale. We will refer to that forecast as the “translated forecast” below.
Which trajectories in GLD’s chart provide the strongest support for this translated forecast, and are they relevant on the basis of the events and themes that their anchoring VecDates envelope (at least partially)?
The quickest way to answer this question is to scan the price percentile table of the Vector Strength Histogram for GLD, find the closest prices to those we are looking for, and look at the Vector Set objectively identified as strongest and best supporting. This will also tell us a quantitative view on the probability and timing of the translated forecast.
We see that Sigma’s 95%tile to the upside (Sigma_95U) two weeks forward, or 9/27/24, is a good match and points to vs11. We also see vs11 at least a half dozen other spots in this table, so it is probably a good one to take a closer look at. We do so below:
Formed by the Aug2018/Aug2020/Mar2021 tops and bottoms, vs11 reflects captures a lot of tailwinds for GLD. The VecEvents for vs11 include gold bullish vectors of Fed’s shift to average inflation targeting, the Covid policy response, the trade war with China, Ukraine/Russia. However, the VecEvents fail to mention the growing popularity of crypto, arguably a GLD alternative, for some large part of that period. GLD leveled down out of the core of vs11 by early / mid 2022, about a year following its final anchoring VecDate3. Fed tightening is the obvious culprit for this “leveling down” in GLD, but that tightening is broadly believed to have ended and market expectations are for it to start to reverse soon. Scanning vs11 with our mouse reveals that $249.53 lies at the center, between the 0.5 and 0.618 VecLevels, so yes, vs11 seems reasonable and supportive of the translated forecast.
What odds do the Vector Model and Sigma place on the translated forecast price occurring?
Both the Vector Model and Sigma see 1% odds of reaching $249 on 9/27/24. Sigma sees $249 as a 5% probability event as soon as 9/27/24, whereas the Vector Model doesn’t reach that probability level until a little before 10/12/24. The Vector Model would consider $249 its EUB, or “Expected Up Body” sometime between 12/10/24 and 3/8/25, consistent with the timing of the translated forecast.
What about the outlook for GLD from the V-Score?
The V-Score is as neutral as it could be on GLD as of 9/13/24, rating it a “0” on a scale of -12 (bearish) to +12 (bullish)4.
The spider comp chart for the 3 month (63d) horizon could prompt some additional interesting dialogue (internal within an individual investor or between a PM and their analyst) concerning GLD in a broader sense, though it is not necessarily instructive in and of itself. It points to SLV circa December 2010 as the best match among top quintile analogues, and Comcast (CMCSA) circa 2017 as the best match among bottom quintile analogues.
The parallel to SLV is obviously that they are both precious metals. By December 2010 there were already concerns about Greece as a threat to the Eurozone, and there certainly is a lot going on geopolitically at the moment.
The parallel to CMCSA circa 2017 is far less obvious conceptually. Perhaps it is that CMCSA was arguably at a point then where it represented a defensive incumbent exposed to some disruption risk, as some would argue GLD (and precious metals generally) is today, with regard to crypto.
Tough to say which is the better fit , geometrically hence the neutral rating for 63d’s forward (and all other time horizons as well)5.
What if the translated forecast is directionally wrong? What is the downside in GLD?
Let’s consider the Expected Down Body (“EDB”) for 12/10/2024 of $221.1. The “VS” side of the table reveals is best supported by vs1. Though GLD is presently beyond its core, into its “Leveled Up” section, vs1 ranks as the strongest vector set given its recency and high top and bottom touch count, and still close proximity to GLD’s current price level.
Reaching $221.1 would require GLD to fall back into the upper part of the core of vs1, between the 0.618 and 1.0 Vec Levels. This would signify the continued relevance of the VecEvents encapsulated by the Jun2021, Oct2023 and Apr2024 VecDates. Breaking out of the core of vs1 coincided with an increasing consensus that the Fed would ease this year. Perhaps if the pace of easing is slower than expected, for example, we could return to the core of this Vector Set and reach the EDB.
There are a number of price percentiles lower than the EDB, from both the Vector Model and Sigma, listed in the table provided earlier, that you should explore if you want to get a fuller understanding of the downside in GLD prices. For example, the Vector Model and Sigma put the 99th%tile VaR price for GLD on 12/10/24 at $194.78 and $199.78, respectively.
A quick, manual exploration of the Vector Strength Histogram provides additional context and perspective.
First we take a zoomed in look at the VSH to look for gaps in the big picture. There is some thinness, not really a gap, to the upside between 260 and 270, but it is otherwise well populated by strong vectors into the 323 area. To the downside there is a continuum of strong vectors down to $116.
Now, let’s zoom in to see the support and resistance dynamics near the current price level. We see that late last week GLD just eclipsed the topmost Vec Level (2.236) of the leveled up section of vs2, signifying that it has broken out of that net vector balance trajectory.
Displayed below, and formed by the May2006/Oct2006/May2014 tops and bottoms, vs2 spans the Global Financial Crisis, but doesn’t include the liquidity squeeze related volatility (hard to consider that relevant at present). Thus, vs2 provides a reasonably sober perspective on gold’s trajectory net of relevant dynamics of that period, such as the Fed’s balance sheet expansion and subsequent tapering, and fiscal governance driven concerns regarding Eurozone’s political durability.
The chart shows that vs2 has contained GLD with rare exception since its formation, through the onset of Bitcoin, the Covid pandemic, etc. The biggest violation of vs2 was in August 2018, amidst Fed tightening measures that ultimately culminated in the December 2018 squeeze in the repo markets. The reversal of GLD upward, back into the channel coincided with President Trump’s increasingly open in his criticism of the Fed for being too restrictive6.
Is this shift upward and out of vs2 reasonable / justified? From a fiscal responsibility perspective perhaps it is justified – to our knowledge there has been relatively little focus of the national debt in the context of this election season.
However, what we are seeing with vs2 we also see with vs18 as well, though vs18 seems to relate more to monetary policy. Displayed below, vs18 is a much more recent, downward sloping vector set anchored by dates that envelope the Fed’s aggressive post Covid tightening. Thus, it is probably not co-incidental that GLD is piercing through vs18 as we wait in anticipation of the start of the reversal of that tightening, expected by many to occur this week.
Conclusion
Hopefully this exercise illustrates how VecViz can facilitate understanding of and dialogue related to the likelihood of a price forecast coming to fruition.
- as reported by https://www.usagold.com/daily-gold-price-history/ ↩︎
- Please note that this translation of bullion prices to GLD prices is subject to many risks. For example, etf’s can trade at discounts or premiums to their net asset value (NAV). ↩︎
- VecEvents displayed in this note are supplied by VecViz for illustrative purposes, and reflect the limited knowledge and resources VecViz has to provide such commentary. The best VecEvents are those you supply or those that your favorite analysts supplies. VecViz hopes to offer externally sourced VecEvents in the future. ↩︎
- The V-Score is a ranking of expected relative price performance, with the reference group being the ~150 tickers VecViz covers. See FAQ and blog for more. ↩︎
- The other time horizons have different closest fitting analogues. See the dashboards to view. ↩︎
- https://www.marketwatch.com/story/trump-ramps-up-criticism-of-powell-reports-2018-08-20 Goldman lists threats to Fed independence as a potential catalyst for higher gold prices in their blog. ↩︎