Friday, August 26, 2016 2:00 AM EDT
In line with our expectations, which we detailed in Low Interest Rates Pushed Gold Price Higher In 2016 But For How Long, the price of gold was not able to break out to a new secular bull market. Gold has clearly been in a tactical bull market since spring of this year. But it did not break through its secular bear market trendline. That clearly suggests more weakness in the short and medium term.
Our forecast is that the price of gold will fall to at least $1250 in the coming weeks and months. At that point it will encounter a critical test as $1250 represents the upper line of a very strong trend channel.
Gold will basically behave in either of two ways:
- The important $1250 area will act as support, and gold will go higher again in order to attempt to break through its secular descending trend.
- Gold will fall below $1250 which would imply that its secular bear market continues. In that scenario, its 3-year descending trend channel will act as the leading pattern, and, ultimately, gold could test the $1000 area later in 2016. That is certainly the worst case scenario, but it is not unimaginable, as interest rates are set to rise sharply and stock markets could turn sharply higher (knowing that ‘risk on’ has returned to the market).
We will not try to anticipate any move, but we simply allow the market to do its work, and will decide on new positions based on gold’s behavior around $1250 combined with intermarket dynamics at that point in time.
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