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Gold Has Two Major Hurdles to Overcome
Bob Kirtley: Gold has 2 major hurdles to overcome and they are as follows:
1. Interest rate rises in the US
2. Money printing by other nations, Japan, UK, Europe, etc.
Both support the US$ and put downward pressure on gold.
The Chart above compares Gold, USD, Euro, Pound and the HUI.
The specter of interest rate increases in the US hangs over the precious metals sector like the Sword of Damocles. The Federal Reserve has stated that they want to ‘normalize’ rates now that the period of Quantitative Easing is over. Employment figures published by the Department of Labour have shown a steady increase in the number of jobs created over the last twelve months or so. On the inflation front; core prices, which exclude food and energy rose at a yearly pace of 1.8% for the month of April, which is the fastest monthly rise for almost a year. These data points will be viewed in a positive light by the Fed in that the economy is on track and recovering at a sufficient rate to allow for tighter monetary policy.
The European Union has announced a programme of Quantitative Easing for their members in an attempt to boost the European economy. The effect of this action will be to dilute the purchasing power of the Euro and so its value will fall. The same goes for the British pound and the Japanese Yen. These three currencies make up the lion’s share of the US Dollar Index, so as they drop it follows that the dollar will rise. The rising dollar will exert downward pressure on gold rendering gold cheaper in dollar terms.
Conclusion
It should be mentioned that gold has been outperforming most currencies other than the US dollar to the benefit of those living or trading in such currencies. However, they have all underperformed when compared to the dollar, so for those who wish to hold some of their funds in cash then the dollar rules.
At this stage of the cycle we remain of the opinion that the above mentioned factors weigh heavily on gold and as such gold’s progress will be severely hampered in the coming months. We also believe that some investors will throw the towel in and walk away from this sector thus precipitating a final capitulation in the precious metals sector.
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Source: http://marketdailynews.com/2015/05/27/gold-has-two-major-hurdles-to-overcome/
