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The Downside Case For Gold - David Brady, CFA (19/07/2018)

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Sprott Money

By David Brady, CFA

Many traders have been complaining recently about the relentless fall in Gold - and rightfully so - seeing it lower every time they open their screens in the morning. Despite having already fallen ~$158 from its peak at 1369 in April, I am, as usual, seeing an increasing number of calls for Gold to fall below $1000 again. This seems to occur every time Gold falls to any extent, and this time is no different. With this in mind, I decided to take a look at the other side of Gold today, the case for further downside.

I am writing this article fully cognizant of the likelihood that this marks the low in Gold.

Gold has already fallen $158, as mentioned above. In prior cases, where Gold has fallen ~95 or more, this is what followed…

So despite all the doomsayers, it is reasonable to expect "at least" a healthy bounce soon.

Now let's review the technical case… Suffice to say from the outset, it's not pretty.


Gold has broken its uptrend dating back to the low in Dec 2015.

It has also broken its prior low in Dec'17 at ~1240.

The 200-day moving average is now sloping down again, which is bearish. But it did this in Dec 2016 also, just before Gold bottomed at 1124 and took off to 1362. It was also sloping down prior to its low in Dec 2015.

However, Gold is extremely oversold and positively divergent based on its Daily RSI and both MACDs, which would suggest that at least a healthy bounce is overdue.

The weekly chart shows that Gold has smashed through its 200-week moving average, which is bearish. Gold would need to break and close above 1235 to negate this breakdown.

However, the weekly RSI is also

This article was written by

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Established in February 2008, Sprott Money Ltd. is a leading precious metals wholesale, institutional and retail dealer selling gold, silver and platinum bars, coins and wafers online and over the phone. We offer competitive precious metals storage, IRA, and RRSP services, as well as a comprehensive news site.Sprott Money Ltd. is a privately held company owned by Eric Sprott and operated by Larisa Sprott.

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Comments (9)

John Chew profile picture
Good report--a case study on looking at the other side of the "trade" or investment. A good example for all to test their assumptions whether bullish or bearish. There are always two sides to a story.

We need more articles like this from SPROTT!
ruber-rant profile picture
Trump isn’t Obama and this isn’t 2015... In addition to the Trillion dollar deficits, we have a president hell bent on “winning the trade war”... He views currency devaluation as a tool he’s willing to use to achieve victory. Trump gauges himself by the stock market daily. He views low interest rates and weak dollar as both ideal and necessary for a successful economy. Most everyone is expecting the same playbook from 2015 and Chinese currency devaluation... well, what if Trump refuses to let dollar strengthen against Yuan? Major currency wars are bad for stocks and traditional investments.
John Chew profile picture
I don't think it matters. $1 trillion in US D currency but tens of trillions in dollar denominated debt that countries need to repay and/or pay interest on--so you have a HUGE dollar short.https://youtu.be/6mkV-c0mlZE

and www.alhambrapartners.com/...

Long-term bullish for gold, but who knows where the dollar gets squeezed to? In this floating exchange rate environment does it matter how weak the dollar is when all the other currencies are in shambles? The dollar will be the last to go since it is the reserve currency. What a mess!
Very informative article. Thums Up!!!!

I trust you will be providing a short update when new developments occure??
Looking forward reading them.
Look at the interaction between Gold, Emerging Markets, and China's reflation the last three years. Overlay a chart of EEM and GLD, and you'll see they've moved almost in lockstep since 2016. China and the Emerging Markets are tanking, and the local currencies are being crushed as dollar denominated debt becomes harder to service. This is driving up demand for the dollar, and it was the softer dollar that appears to have been the primary driver of Gold prices since 2016. If those markets keep turmoiling, which Trump's trade policies seem to be exacerbating, then the dollar is going to continue to appreciate and gold will continue to fall, regardless of the fundamentals. The time to buy gold is when China starts expanding credit again and the Emerging Markets stabilize.
You cracked the code.
Even within EEM if you exclude technology related stocks the damage is greater.
mikeOO profile picture
And printing continues with trillion dollar deficits forecast into the future. How in the world the dollar keeps climbing is beyond me.
Because the rest isnt any better maybe???
B-Flat profile picture
Threat and fear of an equity sell-off and a very high FX volume and strong dollar explain this better than MACD or moving averages. Dollar strength still looks strong, so the gold bear lives, and fattens.
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