Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Return Of The Gold Bear?

By Jordan Roy-Byrne, CMTCommoditiesJun 18, 2017 12:15AM ET
www.investing.com/analysis/return-of-the-gold-bear-200195764
Return Of The Gold Bear?
By Jordan Roy-Byrne, CMT   |  Jun 18, 2017 12:15AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

It was exactly one month ago we discussed our posture as a “bearish gold bull.”

The gold mining sector hit a historic low nearly 18 months ago but this new cycle has struggled to gain traction as metals prices have stagnated while the stock market and the US dollar have trended higher. Unfortunately recent technical and fundamental developments argue that precious metals could come under serious pressure in the weeks and months ahead.

First let me start with gold’s fundamentals, which turned bearish a few months ago and could remain so through the fall. As we have argued, gold is inversely correlated to real interest rates. Gold rises when real rates fall and gold falls when real rates rise.

Real interest rates bottomed in February and have trended higher ever since. As we know, the rate of inflation has peaked and is declining. Meanwhile, the Fed funds rate has increased while bond yields have remained stable. The real Fed funds rate and the real 5-year yield have increased by 1% in recent months. If inflation falls by another 0.5% and the Fed funds rate is increased by another quarter point, then the real Fed funds rate would be positive by the end of the year. That would mark a 2% increase inside of 10 months.

Gold Weekly vs Real Fed Funds Rate vs 5-Y Yield 1968-2017
Gold Weekly vs Real Fed Funds Rate vs 5-Y Yield 1968-2017

Turning to the technicals, we see that gold is starting to follow silver’s lead. Silver is very weak and headed for a test of $16/oz. Last week gold formed a bearish reversal at major resistance ($1300/oz) and closed the week in the red and even below its April high. If gold breaks its 2017 uptrend, then it is likely to retest the $1125/oz level. There will be rebounds along the way but both metals are at serious risk of retesting their bear market lows.

Gold:Silver Weekly 2015-2017
Gold:Silver Weekly 2015-2017

The miners, which have lagged the metals since February, could be close to a technical breakdown. Since February VanEck Vectors Gold Miners (NYSE:GDX) has consolidated within a descending triangle. The candlestick action of the past several weeks is favoring a break of support at $21. The measured downside target would be $17. Meanwhile, VanEck Vectors Junior Gold Miners (NYSE:GDXJ) has outperformed in recent weeks as the rebalancing has come and gone. It may continue to outperform but if the sector breaks lower it will not be spared.

GDX:GDXJ Weekly 2014-2017
GDX:GDXJ Weekly 2014-2017

Both the technicals and fundamentals argue there is increasing downside risk in the precious metals sector. Real interest rates are rising and as the rate of inflation continues to fall, gold will come under pressure even if nominal rates don’t rise.

From a bird’s eye view, the price action in gold and silver so far this year is corrective, meaning it is a correction of the sharp downtrend seen in the second half of 2016. There is a strong risk of that downtrend reasserting itself and metals ultimately retesting their bear market lows before the end of this year. With respect to the gold stocks, the initial downside target is the December 2016 lows which could be reached in the next month.

Return Of The Gold Bear?
 

Related Articles

Arkadiusz Sieron
Stagflation Could Make Gold Happy By Arkadiusz Sieron - Jul 01, 2022 2

The upcoming stagflation might be less severe than in the 1970s. So is the Fed’s reaction, which could mean good news for gold. There are many terrifying statements you can...

Return Of The Gold Bear?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (3)
Gary Doonan
Nanood Jun 18, 2017 11:47PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Hi Jordan. Where do you see value in the markets as they currently stand?
Richie Rich
Richie Rich Jun 18, 2017 8:20PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Thanks Jordon, keep the good information coming. Every one need this analysis here and more... :))))
Kim Boesgaard Lauritsen
Kim Boesgaard Lauritsen Jun 18, 2017 11:05AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Hello Jordan. Thank you very much for sharing your analysis with me, i will share it in my networks, i hope you are having an awesome weekend. Greetings from me in Denmark...
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email