Gold ETF Showing Serious Technical Risk To Go Lower

gold bars
We said yesterday that we wanted to speak a little more deeply on gold.

We pointed out that, short term, we think gold has risk to the downside as we said a week ago.

Longer term though gold could be about to turn back into a downtrend.

gold chart
Gold ETF
This chart is going back through 2012. We show the Gold ETF because we like to use ETFs for quant modeling.

Gold just recently tested this longer term downtrend and appears to be rolling over (down).

This is a major building bearish technical problem for gold. If we break the 114 horizontal line we have a mini-confirmation that gold held that longer term downtrend without breaking above it. That is very bearish.

The next test would come at about 111 where we drew the bottom uptrend from January 2016. If we close below that level it could be lights-out!

Fundamentals Not Helping Gold

Inflation has been very slow in the US.  That now matches very slow inflation rates in the EU and Japan.

Slow inflation is negative for gold.
Source: St Louis Fed
Here you have an amazing chart showing that the CPI inflation measure and gold prices move together.

Now that global inflation is slowing, gold has risk.

And we're seeing it in the technicals.

Fundamentals Also Bearish

Add to that the US Fed is adamant about reducing their bond portfolio and raising rates.

Tight monetary policy by design stamps out inflation.  That adds more risk to inflation and more risk to gold.

Let's Wrap It Up

Fundamentals are damaging gold technicals potentially on a longer term basis.  114 and 111 will be key confirmation levels gold is breaking down. For now we think gold can get there.

By: Chaim Siegel, Elazar Advisors, LLC

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