France Elects Macron – What Next For The Euro And Gold Prices?

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With France voting for Macron – and by default to remain in the EU – it is likely that fears of a European breakup have seen their worst over the intermediate timeframe. The dollar has received safe-haven status amidst euro fears over the past five years. Dollar strength has put downward pressure on precious metals.

A reversal higher in EUR/USD has begun. The last low in the euro (high in the dollar) of this magnitude marked the relative low in gold at $255 in 2001. Although diverse geopolitical and economic cross-currents will be impacting the gold market over the years to come, the importance of a 16-year cyclical high in the dollar (low in euro) as a backdrop should be at the forefront of long-term precious metals and commodity investors’ minds.

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French Election and Gold Price Forecast

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It is increasingly clear that events beyond the United States borders will play an important role in defining the trends over the next few weeks for the precious metals and currency markets.

Of course, the international perspective is a critical component of the long-term thesis for precious metals throughout this macro cycle. During the 1970’s, when gold rose over 2,000% between President Nixon’s breaking of the Bretton Woods accord in 1971 and its subsequent peak in 1980, the bull market was mostly a US dollar-driven event. Dollar-holders turned in their greenbacks en masse, causing the price of gold to rise.

In contrast, the current backdrop for the metals has the potential to be even more powerful than in the 1970’s precisely because we now see a worldwide case for precious metals ownership.

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Gold’s False Breakout — Continued Weakness to Come?

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The surge above $1,265 for gold in the wake of the US retaliation against Syria, yet its failure to hold this level by Friday’s close, constitutes a “false breakout” in our technical work. False breakouts occur when an important resistance level is breached momentarily, but then buyers nearly disappear and new sellers show up, causing a reversal bar on the daily price chart.

False breakouts (or their inverse false breakdowns) tend to mark at least short-term reversals. However, the degree and length of the reversal cannot be determined simply from the single day of price action. It would be a mistake to think that all false breakouts portend major trend reversals. Perspective is key.

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Will a Fed Rate Hike Mark the Low for Gold?

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Three-month US Treasury Bills are now pricing in a hike for tomorrow’s interest rate decision by the US central bank. This leading indicator has been highly accurate since the first Federal Reserve Rate hike in December 2015. Below we show a two-part graph, with the 3-month Treasury yield on top, and the price of gold immediately below. Fed ¼ point rate hikes are highlighted by the black vertical lines:

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Gold Faces Huge Test at $1,300

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Gold is back to within $40 of the most important technical level we have been watching since 2011: the primary declining trend shown in magenta on the 10-year chart below. The downtrend in question now comes in squarely at $1,300 – so a new test of the trend line could come as soon as this week:

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US Dollar Weakness — Implications for Gold

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There has been some analysis in the mainstream press recently suggesting that should the dollar fail to hold 100, it could retreat perhaps to 97 – 98 before finding support. While this is true from a short-term basis, as there is a rising (blue) trend line visible on the chart from the May lows, we believe this analysis is largely missing the big picture.

A failure for the dollar to hold its November breakout would constitute an extremely bearish “false breakout” from a 2-year consolidation. The result should be a severe plunge to the downside lasting for several months as an initial wave. The blue trend line shown above would not provide more than a temporary bounce in such a situation. False breakouts following new multi-year highs represent major reversal patterns, quite in contrast to false breakouts from a multi-year bottoms.

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Silver: Volatile Gyrations Are Part of Longer Basing Process

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It is important that precious metals investors keep multiple time horizons in perspective as they make their investment decisions. Often the focus is on the day to day gyrations in the prices of silver and gold. Yet it is critical to revisit the longer-term perspective on a regular basis, as the price action currently being seen has the potential to set the silver market on an important course lasting well into the next decade.

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Gold: $1,200 resistance key to first-half 2017

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Gold’s behavior near the $1,190 – $1,200 resistance level this week will be telling and thus important to watch. Broken support should act as resistance on the next advance. In plain English, what we are saying is that since buyers failed to show up at $1,200 last November in the wake of the post-Trump sell-off, all else being equal we would expect them to be absent this week when the price tests that level again.

If the gold price backs off in this resistance region as we expect it to, it will indicate a market that is set to spend the next few months range-bound between $1,200 and $1,115, with the possibility of grinding lower toward the 2015 lows near $1,045.

However, should the market disregard the $1,200 resistance and continue higher over the next 1-2 weeks, it will indicate that an entirely new class of buyers has emerged. Effectively, it would mean a different set of buyers are filling in for those absent last November.

Watching gold as it approaches $1,200 will thus be an important indicator for the remainder of 2017. A strong advance through this level will be telling us that the long-term 2011-2016 (magenta color) downtrend will not represent as significant of a challenge on the next attempt as it did during the multiple attempts of 2016: a new set of buyers will have entered the market to support prices.

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2016 Precious Metals Performance Review

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With 2017 upon us and another year in the record books, let us examine the performance of the precious metals in relation to other major asset classes for the full year in an attempt to learn what 2017 may have in store. We begin the article with a broad examination of world assets and then narrow our focus toward gold, silver, and the related mining equities.

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Monitor the US Dollar Breakout

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The US dollar took the opportunity of the Fed rate hike last week to advance further from the developing breakout we were observing over the past month. The dollar surged over 1% after the hike, eclipsing the 102 level on the Dollar Index and finally closing near 103 by Friday.

The breakout looks successful, and we now have an intermediate-term target for the dollar at 108 on the Index.

Gold and the precious metals are expected to be under pressure through the remainder of the dollar’s advance toward 108, although it is not true that the two must move opposite the entire time: there are distinct episodes in which the dollar and gold will move in the same direction. So while we will remain cautious on the precious metals until the dollar approaches its intermediate target, it is likely that gold will attempt to establish its intermediate low before the dollar reaches its expected peak.

We are now within five points of the dollar intermediate target… and as, for example, the previous five points from 98 to 103 were gained in just six weeks, the next low for gold could roughly be expected to form within a similar timeframe.

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