Photographer: Duncan Chard/Bloomberg

Bull or Bear, These Gold Charts Offer Something for Everyone

  • Bear trend descending from record high in 2011 still intact
  • Higher highs, higher lows signal recent rally may have legs

Gold is gripped by conflicting forces.

Bearish investors see no incentive to hold the precious metal because equities are climbing to records, the global economy is recovering, and the Federal Reserve is so wary of tight labor markets that it has pledged to increase U.S. interest rates further this year.

At the same time, bulls say gold is an appealing hedge as long as Donald Trump’s presidency remains mired in controversy and legislative gridlock, and as terrorist attacks and geopolitical tensions heighten risks for other assets.

While prices are up 9 percent this year, they’re little changed from a year ago. Over that period, bullion has been on a roller-coaster ride, rising as high as $1,375 an ounce and dropping as low as $1,123. Gold was at $1,256 on Friday.

The following charts may offer succor to bulls and bears alike.

In early June, prices burst through a slumping trend line going back to the record $1,921.17 in 2011. But the rally failed to hold above the long-term bearish trend, and that “is not a healthy sign,” said Fawad Razaqzada, a London-based analyst at brokerage Prices could drop to $1,236, and then to $1,200, he said, adding a decisive break above the line is needed to signal the end of the downtrend.

Gold is the most expensive relative to silver in more than a year. The metal is little changed in the second quarter while silver has lost 9 percent. Silver tends to fall more than gold when precious metals weaken, while the reverse happens in a bull market. The ratio of 75 is above the 10-year average of 62.5.

“It’s probably a good moment to buy silver and sell gold if you like to trade the ratio and believe there’ll be even a moderate amount of mean reversion,” said Philip Klapwijk, managing director of Precious Metals Insights Ltd. “That said, gold’s not that far above the 200-day moving average and a break below that could trigger a leg down, which would probably see the ratio blow out.”

There are also some bullish signs. Higher highs and higher lows signal a continuing rally for some technical analysts. Prices will stabilize between the 200-day moving average at $1,237 and $1,250 and then edge higher toward $1,300 later in the year, as the U.S. dollar comes under more downward pressure, according to Georgette Boele, a currency strategist at ABN Amro Bank NV in Amsterdam, on Wednesday.

Gold may be in a longer-term bullish trend signaled by the formation of a rare golden cross in December, according to Ned Naylor-Leyland, manager of the Old Mutual Gold & Silver Fund. That’s when the 50-week average moved above the 200-week gauge, and the previous time it happened was in 2002. After that, gold climbed more than sixfold in nine years. Every time they’ve crossed in the past 30 years, it foreshadowed a broad price move that lasted at least three years in gold and real bond yields, according to Naylor-Leyland. 

— With assistance by Eddie Van Der Walt

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