gold’s short term outlook

Gold price: is a rates hike finally priced-in?
in theory non-yielding assets like gold do not react well to increasing rates, as they look less attractive relative to income-bearing assets. The metal also moves in the opposite direction to the dollar by convention, as it is traded as a safe-haven pseudo-currency and a hedge for the greenback.

Gold continued to decline but the miners held support and stabilized. Gold traded as low as $1045 on Thursday but the miners continued to diverge in a positive fashion. The recent relative strength from the gold miners particularly in the face of new lows in Gold, coupled with the oversold condition of the metals suggests a sector rebound is developing.

Before we continue with the miners let us comment on Gold’s outlook. Following the breakdown from the bearish flag formation Gold traded down to $1045/oz. We would anticipate Gold enjoying a bigger rebound if it first tested major support at $970/oz to $1000/oz. If Gold is beginning a rally from $1045 then it could be limited due to overhead resistance at $1100/oz to $1110/oz. click on chart to enlarge
Dec32015Goldm
The fact that the gold miners held their lows even as Gold broke to new lows is bullish and hints that a short term rally is underway or could begin soon. Moving forward, we think the miners to metals relationship could be a leading indicator for the sector. Recall that the miners during the major bottom in precious metals in 2000-2001 bottomed several months before Gold. While we expect another leg lower in the metals and another push higher in the US$ index, we would not be surprised if the extremely oversold mining sector continued to diverge