In an Unpredictable Market, the Future of Gold Remains Clear
Even though the markets haven’t behaved logically of late, it would have seemed a slam dunk for gold to rise if Donald Trump won. After all, we faced uncertainty around his policies, rising inflation from infrastructure spending, and higher expected growth rates.
But instead, gold has headed back down more sharply. It had its initial rise in the futures market when Trump looked like he was going to win. But since then, it’s reversed course – the opposite of the stock markets.
While I’ve been saying for a long time now that gold still has a lot to lose, a new and interesting dynamic has arisen to add more pressure to the downside.
Before I explain, let’s first look at the chart pattern here…
This pattern suggests that the rally from late 2015 had seen a clear a-b-c bear market or corrective rally, just as I’d forecast to around $1,400.
The next stop, coming from strong support in the 2008 mini-crash, is $700 and it looks like this move is already well into motion!
A slowing economy, with deflation, would be the biggest reason for gold melting to that level. The fall since the election would suggest such deflation is not very far away.
At the beginning of 2016, I forecast that gold was very oversold. It was at $1,050 per ounce in late 2015 and so due for a major bear market rally back up to as high as $1,400. As I said it would, gold did bounce and got to $1,373 per ounce in early July 2016, at which point I recommended selling again. Lo and behold, gold fell rapidly to $1,124 in mid-December.
Gold is now very oversold again, but on a shorter-term basis, and it’s due for a minor rally to around $1,250. But given how oversold it’s become, it could even go back to a slight new high near to $1,400. That could come by mid-February or so.
But my forecast of $700 is still looking increasingly likely by the end of this year… meaning the window to get out is closing.
The ultimate downside for gold at the bottom of the 30-year commodity cycle, between early 2020 and late 2022, is $400 or lower to erase the bubble that began accelerating in 2005.
That’s when I would start to recommend buying gold again longer term, with a target of $4,000-plus by 2038-2040. The next 30-year commodity cycle could be the greatest ever seen because it will be driven by the demographically growing and still-urbanizing emerging world. Remember, they’re the ones who’ll be producing and consuming most of the gold and other commodities.