Summer doldrums could see lower lows for gold as upside headwinds mount

VANCOUVER (miningweekly.com) – Gold bug Mickey Fulp does not expect the gold price to break out this year, bar any substantial geopolitical event that upsets the state of the global economy.

During a recent mining conference held in Vancouver, the ‘Mercenary Geologist’ told Mining Weekly Online that he expects gold to test new lows over the coming summer months, which has traditionally been a soft market for the precious metal.

On May 15, gold slipped below its psychological level of $1 300/oz, and closed below its 200-day moving average, something it had resisted doing five times over in five months. By breaking the five-month support, it points to a bearish outlook for the investment metal, as rising interest rates and a stronger greenback nix the wind from gold’s sails.

Fulp noted that gold traditionally has a strong inverse correlation with the dollar – when the dollar is strong, gold tends to soften, and when the world’s leading reserve currency falls, gold tends to pick up steam.

He pointed out that, at 20 days before the November 2016 US election, there was no inverse correlation at all. Same for the 100-day mark, and the 200-day mark before the elections – no inverse correlation.

But just 20 days following Trump’s presidential victory, Fulp pointed out that a strong inverse correlation emerged once more, which for the most part, has been ongoing ever since, and in fact gets emphasised every time Trump makes a controversial statement or decision.

Fulp attributed gold’s recent slump to euro weakness.

“The gold price chart has been marked by higher highs and lower lows since November 1, but those higher highs are in question at the moment. All the world’s economies are growing in relative coordination at present, despite the 10% market correction we saw earlier in the year. Also, there is relatively low geopolitical risk at the moment, which provides little impetus for the gold price to rise in its traditional role as a store of value in times of turmoil,” he explained.

Fulp pointed out that Trump’s recent pull-out of the Iran nuclear deal failed to move the needle on the gold price, except perhaps for oil prices gaining. “This equates to lower safe haven demand for gold and the US dollar. And it leads to extreme resistance at the $1 360/oz level. Summer is coming and we’ll probably see gold’s lowest price this year, as low demand and relatively low geopolitical risk work against it.”

“Nothing trumps US dollars or gold,” he said, fondly quoting Lord Byron stating: “O gold! I still prefer thee unto paper, which makes bank credit like a bark of vapour.”