Seeking Alpha

Gold Continues To Melt

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Includes: DGL, DGLD, DGP, DGZ, DZZ, GDX, GDXJ, GLD, GLDI, GLL, IAU, JNUG, OUNZ, PHYS, QGLDX, SGOL, UBG, UGL, UGLD
by: ANG Traders
ANG Traders
Macro, gold & precious metals, long/short equity, newsletter provider
Summary

Gold continues to maintain an elevated level because of the fear of trade.

Technically, gold is slightly positive for the short term.

The set up for gold is similar to 2016.

Futures traders are set up like they were in 2016.

Gold has been holding up because of a weaker dollar and continued fears about a non-existent recession. In this piece, we update the gold market.

Gold has been unable to stay above its 50-day MA, and it is below 1500 as we write this. The dollar is starting to strengthen now that the Fed has broadcast the end of rate cuts for the medium term; a rising dollar will weaken the gold price. Rates are at levels not seen since 2016 just before gold lost 20% (chart below).

Gold and the Pring Inflation Index normally maintain a positive correlation. When this correlation spikes down into the deep negative, it recovers quickly and six of the last eleven times it did this, the gold price subsequently weakened. That is what is happening at the moment (chart below).

The 'early-winter-to-late-summer' inverse pattern between gold and TBT is still in play. TBT followed bond yields lower, but in the past month, it has started to bounce back (chart below).

Technically, gold seems more bullish than it was last week. However, today it has dropped below the 50-day MA and the 1500 level. The 2/3 speed line is just below at ~1480, and if gold can't break below on a close basis, then more rallying is to be expected.

  • MACD is rising from a bull cross-over.
  • RSI is in neutral.
  • Stochastic is about to enter over-bought, but it can stay there for some time.
  • +DI is above -DI.

We need to see prices below 1480 for the down-trend to continue in the near term. Longer term, we expect gold to continue trending lower as the realization that the economy is not going into a recession sinks in (chart below).

The HUI Gold Bugs index and the Gold Miners Percent Bullish index are both continuing to replicate the bearish pattern from 2016 (red ovals below). This implies weakness in the mining equities (chart below).

The commitment of gold futures traders has reached an elevated level similar to July of 2016. The managed money (momentum players) are maximally long, while the producers and swap dealers (the experts in gold) are maximally short. Each time these maximums were reached in the past, downward pressure on gold developed soon after (chart below).

Gold continues to maintain an elevated level because of the fear of trade. As the realization that we are not falling into a recession - thanks to the deficit spending of the Treasury - starts to sink in, we expect gold to weaken significantly.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.