Rising Rates and the Outlook for Gold

02/05/2018 5:00 am EST


Omar Ayales

Editor, Gold Charts R Us

The interest rate rise continues; the U.S. 10-year yield reached a 4-year high which added downside pressure to the U.S. stock market, and globally as well, asserts Omar Ayales, editor of Gold Charts R Us.

It’s also causing the gap between dividend yields and bond yields to widen. The higher bond yields will increasingly lure investor demand which in turn could put more pressure on stocks.

Fixed income is making a comeback and yield seekers could start turning to bonds, particularly at a time when speculation grows that stocks are overvalued. The rise in yields, to an extent, is also indicative of rising inflation which has been a catalyst for gold.

Gold has had a decent run since bottoming in December. After hitting its August highs last week, it gained almost 10% in 7 weeks. Not bad for a rise we consider to be a moderate one.

The dollar index is holding near its recent 3+ year lows, while looking towards the Fed for a clue today. The dollar is in a bear market which is a plus for gold and most of the markets.

Gold's strong resistance level is the top side of a large turnaround time. Once it breaks above $1380, this ‘C’ peak levels of the last 4 years, it’ll turn clearly bullish.

And now this resistance level together with the uptrend of the last two years is forming an ascending triangle. This means once the upcoming short-term weakness is over, the rise will continue. This is a continuation pattern, and together with a C rise, the gold price could well jump up in a gangbuster rise, and we’ll want to be onboard.

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The bottom line means we could see gold decline to the 23-month MA at $1270, and possibly reach the two-year uptrend near $1240 before a great rise gets underway. And once gold breaks above $1380, it’ll be off and running!

Silver continues to struggle below $17.50, but I believe it’s poised to outperform everything, particularly in an environment where gold and resources are poised to shine. In the meantime, be patient and continue accumulating selectively, during weakness.

Gold shares continue to hold up. Our positions have gains locked in and we’re waiting for weakness to add to our positions or strength to take profits. We continue to hold full positions in VanEck Vectors Junior Gold Miners ETF (GDXJ), Agnico Eagle Mines (AEM), Wheaton Precious Metals (WPM) and Kirkland Lake Gold (Toronto: KL).

Keep your buying triggers ready to take advantage of weakness. Keep the longer-term trend and fundamentals present. Avoid static.

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