Record-high equities, a hawkish Federal Reserve wary of a tight labor market and intent on more interest rate hikes, and a recovering global economy have helped to embolden the bears, while deep-seated worries over Donald Trump’s controversial presidency and heightened geopolitical risks invigorate the bulls.

Even after prices climbed about 9 percent this year, they’re only back to levels they were at roughly a year ago, before they embarked on a roller-coaster ride that lifted them as high as $1,375 and took them as low as $1,123 an ounce. Gold traded at about $1,252 on Thursday. The following charts may offer succor to bulls and bears alike.

The trend line dates back to the record of $1,921.17 in 2011. While prices burst through in early June, they failed to hold. Gold’s inability to sustain its rally after briefly breaking through its long-term bearish trend “is not a healthy sign,” said Fawad Razaqzada, a London-based analyst at brokerage Forex.com. 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. When the opposite happens, it’s known as a death cross and considered bearish. 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.

Source:
courtesy of BLOOMBERG

by Ranjeetha Pakiam

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