It’s not easy being a gold bug, and it may get even harder.
While the yellow metal is up a little after Ukraine rejected Russia’s cease-fire proposal, bullion is still down nearly 4 percent over the past two months.
Against this backdrop is a strong American currency. The U.S. dollar index is near 14-month highs while the euro is well below $1.32.
That’s hurting gold, and things may get worse for the precious metal.
“Since gold is a dollar-denominated commodity, as the dollar goes up, gold gets more expensive for non-U.S. dollar purchasers,” explained Erin Gibbs, equity chief investment officer at S&P Capital IQ Global Markets Intelligence.
Gibbs, who advises over $12 billion in assets, sees the dollar getting strong because of policies at the Federal Reserve and the European Central Bank. While the Fed is on path toward higher interest rates, the ECB continues to ease and may possibly look to quantitative easing to help jumpstart the eurozone’s economy.
But it’s not just a dollar issue, according to Gibbs. “India, which is the second-largest purchaser of gold, had a 39 percent drop in demand for gold last quarter” compared to last year, she said. “This is [caused by] a combination of higher taxes and better investments. But that trend is also expected to continue. And so with these two combinations, I see gold going down for quite a while.”
The technicals on gold are also pointing to lower prices ahead, based on the charts of Jason Rotman, managing partner at Lido Isle Advisors. “We’re still in a downtrend from those crazy highs of $1,900 a few years ago,” he said.
Many technicians are looking at the $1,180 per ounce level as a significant level in gold. That’s where it made a double bottom in 2013. However, Rotman thinks the low will be slightly below that.
Rotman is targeting a price of $1,153 per ounce instead. That’s “a 61.8 percent Fibonacci level retracement, which is what a lot of investors look at,” he said. “That’s the level from the major rally from below $1,000 to $1,900. That $1,153 level is where I think the market is going to stop. I don’t think it’s going to head lower than that.
To see the full discussion on gold, with Gibbs on the fundamentals and Rotman on the technicals, watch the above video.