Goodbye, Gold: Here's Why the Rally is Over

Gold futures are quietly sinking below $1,170 this morning.

The Midas Metal is breaking down. Now it runs the risk of coughing up every ounce of its comeback rally.

The damage has been swift and brutal. Gold is now 14% off its summer peak. We watched precious metals and miners vault to two-year highs just a few months ago as the Fed backed off a summer rate hike and world markets shook in fear of the Brexit vote.

But gold’s trajectory changed dramatically during the third quarter. While the major averages chopped along, gold couldn’t attract any attention. By the time the dust settled, gold had dropped toward 4-month lows.

Now gold finds itself on the brink once again…

“Gold has suffered its worst month since mid-2013, as the election of Donald Trump, the rising dollar and increased expectations of a US rate rise combined to send prices down 8.1% in November,” The Financial Times reports. “The fall to $1,173.20 per troy ounce marked the steepest monthly sell-off since June 2013, when the precious metal lost 11% in the wake of the so-called taper tantrum. November’s sell-off saw gold’s year-to-date gains trimmed to 10.7%.”

As it turns out, a tumultuous election season turned into a last ditch effort to  drum up gold buyers.

It was a different world when we last updated you on gold in early November. We were days away from Hillary Clinton decisively winning the presidential election. The S&P 500 had just logged a six-day losing streak. The Dow had shed more than 100 points. And the Greenback was retreating, capping off a rally that propelled the U.S. Dollar Index to seven-month highs.

That’s when everything changed.

Just a month later, Trump is the president-elect. The S&P 500 rests near its all-time highs after a historic run. And the Dollar Index is hitting levels we haven’t seen since 2003.

Each of these developments is bad news for gold. Just when it seemed like precious metals would gain some traction, the rally completely fell apart.

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Gold’s do-or-die moment came into play as it tested its 200-day moving average in October. It even managed to tease us with a sharp rally that briefly topped $1,300 early last month.

But gold finally crashed through its 200-day moving average the day after the presidential election. And it hasn’t looked back since. Now the metal has dropped below $1,200—a level that had held strong since gold’s initial breakout last winter. That certainly isn’t bullish…

The chances for a meaningful gold rally into the holiday season just went from slim to none. Traders are looking for any reason at all to ditch their gold plays—and the financial media is offering up plenty of fodder.

Fed fund futures show a 99% chance of an interest rate rise this month. That’s a virtual lock—and considered by most to be bearish news for precious metals. Can gold rally in the face of higher rates? Sure. But that’s not what the herd’s expecting right now. Sentiment is turning incredibly negative. That’s bearish for gold in the short-term.

We’ll continue to watch the gold breakdown for signs of a bottom. If precious metals can carve out support soon, we could see a tradable bounce. If not, gold could visit its 2015 lows in no time…

Sincerely,

Greg Guenthner
for The Daily Reckoning

The Daily Reckoning