THERE´S NO MORE GOLD IN GOLD / BARRON´S MAGAZINE

Getting Technical

There’s No More Gold in Gold

By Michael Kahn

Photo: Getty Images 

It’s understandable if reading the news these days makes you nervous. And when investors get nervous, they turn to hedging strategies, including moving some of their assets into precious metals. But no matter how we slice and dice them, the trends in gold, silver, and platinum are all still to the downside.

While gold is indeed up about 12% from its lows set a year ago, it is far from being in a bull market. The best we can say is that it remains in a sideways range since its 2013 plunge (see Chart 1).

There is a technical argument that the entire range is a bottoming formation. It’s not a very good argument, as the bottom lasted far longer than the bear market it is supposed to reverse.

The bad news is that the rising trend from last year broke down earlier this month (see Chart 2). It is possible to have both the short-term breakdown and the longer-term trading range co-exist, but it does delay any expectation that the faithful will get their wish with a breakout anytime soon.

Last week, gold bulls got very excited when the metal—and especially gold-mining stocks—jumped when the Federal Reserve made its expected move to raise interest rates for the third time in 2017. The key short-term rate moved higher by 25 basis points (one-quarter percentage point) to a range of 1.25% to 1.5%. That weakened the U.S. dollar and pushed gold prices up, and the VanEck Vectors Gold Miners exchange-traded fund (ticker: GDX) jumped more than 3%.

Even with that nice gain, mining stocks did not break their declining short-term trend, which remains to the downside, and the ETF trades well below its major moving averages (see Chart 3).

There isn’t much to like in the other precious metals—silver and platinum. Both are in downtrends in the short and long terms.

Some will argue that the dollar is holding all the metals down as dollar bears failed to capitalize on a major breakdown last August. The dollar index traded below a three-year support level but soon bounced back above it. In technical analysis, a failed breakdown is a bullish signal and a bullish dollar is generally bearish for gold.

Even if we take the dollar out of the equation, we see weakness in the yellow metal. Gold priced in euros, for example, is also weak. The chart of the SPDR Gold Shares ETF (GLD) divided by the CurrencyShares Euro Trust ETF (FXE) shows a breakdown below a four-year rising trend (see Chart 4).

At the same time, metals such as copper and palladium are in rising trends. Copper started to climb a year ago. Palladium now trades at 17-year highs, just a hair below its all-time high set in January 2001.

Even aluminum and nickel show some short-term strength, so we have to think that precious metals’ prices are soft for reasons unique to them.

The elephant in the room, when it comes to gold as a currency, is Bitcoin and the other cryptocurrencies. In the aftermath of the financial crisis, when governments around the world printed money out of thin air, the buzz was that gold would replace fiat currencies. Indeed, gold advertising on TV spiked just as gold itself reached its record high of $1,923.70 per ounce in 2011. (It traded at $1,265.60 Monday afternoon.)

Now, Bitcoin and the others have that same support from investors, and theoretically we can blame some of gold’s weakness on the rise of cryptocurrencies. Even so, according to a recent report from Goldman Sachs, gold’s market capitalization is $8.3 trillion. Bitcoin, the largest cryptocurrency, currently has a market cap of $388 billion.

Goldman also said there has been no discernible outflow of money from gold ETFs.

When it comes to the charts, all we can say is that the major trend in precious metals is flat, with minor trends pointing lower. Until we see some real bottoming action, we don’t believe there is any money to be made or portfolios to be saved with gold and its cousins.


Michael Kahn, a longtime columnist for Barrons.com, comments on technical analysis at www.twitter.com/mnkahn. A former Chief Technical Analyst for BridgeNews and former director for the Market Technicians Association, Kahn has written three books about technical analysis.