Jordan Roy-Byrne: Double Bottom In Gold Is Likely In Coming Months to $1050
Gold investors are a little worried in the last week. On election night, gold shot up $60, while the DOW went down 800 to 900 points. In the morning, gold was down and the DOW was way up! Some people are thinking we are back in a bear market, we need to sell everything- gold is done.. Jordan Roy-Byrne says that’s exactly the wrong kind of thinking.
If you look at real interest rates, you can see that gold’s price decline will likely be temporary. People are worried that higher Fed interest rates are bad for gold- but negative real rates are in place, and have been driving gold’s performance as they always do. We will see inflation rise quite a bit, and faster than yields on interest rates- therefore real rates should remain negative or drop further.
The baby hikes are not fundamentally changing where negative real rates are, so the coming sell-off would be more technically driven by it’s own weakness. It’s a short-term fundamental-development combined with a technical move. A big move down to $700-500 is nonsense because of huge deficit spending- and the tax rebates and tax cuts under Trump. Money is going into the hands of people and the economy and causing inflation.
Jordan also looks at gold against the dollar, and against government bonds. Gold has been correlated with government bonds for most of this year. It failed to break away from bonds and if it drops below $1,200 we will probably see gold’s bottom tested. A retest of the low would mean a double bottom. An elevated dollar could push gold below $1200 into this double bottom. When gold rebounds, gold should enjoy a strong sustaining move upward.
Talking Points From This Week’s Episode:
• Gold could go down to $1080 or $1050, followed by a strong and powerful rally up
• To negate this short-term bear, gold would need a weekly close of above $1280-1290
• A weekly HUI close of above 220 is needed to negate the temporary bear
• By early to mid 2017, gold will likely be bullish again
Jordan Roy-Byrne, CMT is a Chartered Market Technician and member of the Market Technicians Association. He is the publisher and editor of TheDailyGold.com, a publication which emphasizes market timing and stock selection for the sophisticated investor.