TREND ALERT®: Gold Price Plunge: Bear market or market bottom?

Posted 10/7/16

 

TREND ALERT®:Gold Price Plunge: Bear market or market bottom?

KINGSTON, NY, 7 October 2016—Having climbed some 24 percent this year, the signs of a weakening gold market …

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TREND ALERT®: Gold Price Plunge: Bear market or market bottom?

Posted

TREND ALERT®:
Gold Price Plunge: Bear market or market bottom?

KINGSTON, NY, 7 October 2016—Having climbed some 24 percent this year, the signs of a weakening gold market had been steadily flashing for weeks.

Down from its mid- $1,350 range but still above $1,300 until Tuesday, gold suddenly got slammed. Plummeting over $40 per ounce, gold registered its biggest one-day drop since 2013. By Thursday, after falling for eight straight sessions, gold dove to a four-month low. 

Is this the beginning of the end of the gold bull run? Is it time to panic sell and cut losses?

As trend forecasters, and not investment advisors, we analyze available data to determine what drives market moves and not whether to buy or sell. Therefore, from premonitory analysis of generally accepted and quantifiable market data driving gold prices down, while the short term fundamentals were bearish for gold, we maintain our forecast that when gold breaks and stabilizes above $1,400 an ounce, the price will spike to $2,000 per ounce.

Why?

Is it hard economic data driving gold prices down? No! Equity market eyes are primarily focused on the United States, which, while the world's largest economy, comprises just five percent of the world's population. Yet, with great anticipation, today's job numbers were the main data point that would determine whether gold and silver prices rise or fall. The general consensus was, if over 175,000 new jobs are created, that would raise the odds the US Federal Reserve will increase interest rates before year's end. Thus, the higher interest rates rise, other yield-bearing assets become more attractive than gold.

Therefore, as quantifiable content analysis of US business news proves, one of the major factors driving gold prices down over the last few weeks has not been hard economic data but rather the ongoing chorus of Fed speak. On a daily basis FOMC choir members have been hitting the airwaves screaming "rate rise coming soon." 

Hard Data, Not Hype

While there has been some positive economic data in the US, the unemployment rate ticked up in September and job growth at 156,000 came in below expectations. And on a global scale, economic news ranges from tepid to much worse, which supports our forecast for long term gold growth.

For example, last week the World Trade Organization warned of a "dramatic" global trade slowdown and cut its global growth forecast to just 1.7 percent. On Monday, the Brookings Institute parroted the Trends Journal's Top Trend of 2016 "Global Recession," proclaiming the global economy is "sliding back into the morass." Then on Wednesday, the International Monetary Fund downgraded its global growth forecast of advanced economies while warning a record $152 trillion of world debt poses a serious threat to the global economy.

Trend Forecast: Gold prices were driven down this week while China (among the world's largest gold buyers) equity markets were closed during its Golden Week vacation. While gold prices have slumped near term, in this climate of high economic and geopolitical volatility, gold's safe haven status will sustain and enhance its value.