Gold Bears Are Just Getting Started; Look For $1,000 - Asbury Research
(Kitco News) - Although gold has been in a nearly four-month downtrend and is currently trading near a one-year low, one market strategist says that there is still more downside in for the yellow metal.
In an interview with Kitco News, John Kosar, Chief Market Strategist at Asbury Research said that after being caught in a sideways trading pattern for nearly two years, gold has resumed its long-term 2011 downtrend after break critical support around $1,257 an ounce.
Looking ahead he said that he could see gold prices testing the 2015 lows at $1,100 an ounce and could even fall below the $1,000 level in the over the intermediate to long term.
“Gold is a momentum market,” he said. “I can really only be bearish on gold as it comes out of a sideways congestions to break old lows. This is a bearish chart that has taken seven to eight years to evolve.”
Kosar’s comments come as gold prices continue to struggle to attract investment capital and hover just above recent 12-month lows. December gold futures last traded at $1,222.60 an ounce, down 0.41% on the day. Since mid-April gold prices have lost almost 10% and if the precious metal follows the 2011 pattern it could fall a total of 45%.
Gold’s negative momentum can also be see in the exchange-traded products sector. Kosar noted that SPDR Gold Shares (NYSE: GLD), the world’s largest gold-backed ETF has seen steady outflows since late April.
“Think of these assets flows as trend fuel," he said in a recent report. “Expanding assets indicate near-term bullish conviction in higher prices, while contracting assets indicate a lack of bullish conviction."
Not only does gold have strong negative momentum, but Kosar said that he is also negative on gold as he expects the U.S. dollar to push higher. He noted that in the last six months the inverse correlation between the greenback and gold has been around 0.89.
He explained that a booming U.S. economy, rising interest rates, and rising bond yields will all help to support U.S. dollar strength.
“There are fundamental reasons why the U.S. dollar has been so strong,” he said. “Our work shows that the U.S. dollar can still move higher, which helps to support Asbury Research’s negative bias on gold prices.””
Kosar added that it would take some fairly heavy lifting before he shifts his currency bearish stance in the yellow metal. The market would have to make a sustained rise significantly above $1,280 an ounce before he would consider abandoning his currently negative bias.
“You just can’t ignore this major downtrend. It has been years in the making and it is going to take more than a $50 dollar rally to change anything,” he said.