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May 27, 2024
PI Global Investments

We Downgraded Gold to Neutral. Here’s Why.

I highlighted gold’s powerful bullish reversal from support at $1,811 an ounce In the Oct. 17 issue of the Institutional View. After it hurdled $1,940 without breaking below $1,900, my work generated a Buy signal for gold. But the metal’s action since then forced a downward revision in its outlook.

In the Dec. 29 issue of the Institutional View, I downgraded gold’s outlook to Neutral. While gold tested its $2,075 high, as I had projected, it was rejected decisively when it attempted to hurdle $2,100 (see chart below). That produced a “bearish reversal”—a higher high than the prior day, a lower low than the prior day, and a close below the prior day’s low. After declining to test support at $1,980, bullion was unable to rally—stalling below $2,100 again. And momentum diverged negatively.

The weekly chart below shows a 3.5-year rounding base. But you can see the strong reversal (yellow arrow) from $2,135 four weeks ago. Gold was unable to close above $2,100 after breaching that mark in intraday trading. This was its fourth unsuccessful attempt to close above that barrier.

Unfortunately, action in gold-mining stocks isn’t providing bullish support. The two major gold-mining indexes have struggled to remain above their respective 200-day moving averages, which signals a bearish long-term trend.

This is an important period for gold. It needs to hold $1,950 to $2,000 support to be positioned to hurdle $2,100 decisively in the coming weeks. Breaking below $1,950 would lead to a decline back to at least $1,900 and potentially back down to the mid-$1,800s.

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Andrew Addison is the author of The Institutional View, a research service that focuses on technical analysis.

Write to editors@barrons.com

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