Gold May Be a "Sell" Now - RBC Wealth Management

Thursday June 02, 2016 16:16

(Kitco News) - Gold’s rally seems to be coming to halt with investors questioning whether or not the uptrend has turned the corner.

According to RBC Wealth Management, it just might have.

“Gold has had a 25% bounce up from the low of six months ago, and appears to be entering a range of 1200–1300 that could hold it for the next several months,” noted Bob Dickey, technical analyst for the Canadian financial institution.

“If it were to break below 1,200, we would expect a lower range, and even a longer bottoming period that could stretch into years.”

Gold prices fell to a 3.5-month low at the start of the week after hitting a 15-month high at the start of the month. August Comex gold futures settled Thursday down $1.90 at $1,212.60 an ounce.

Earlier in the month, Dickey released the same report but his outlook was a little more optimistic, noting that gold had the potential to hit $1,400. However, he remained cautious at the time, saying “it is still too early to determine if the current rally is the start of a longer-term uptrend, or just a move to the top end of a range.”

A major factor pressuring gold has been heightened expectations of a U.S. interest rate hike, which would strengthen the dollar. According to Dickey, the greenback may move higher and in turn, hurt the yellow metal.

“The U.S. dollar continues to trade in a range of 92–100, which has held it for the past 18 months,” he noted. “A breakout either way would be significant, in our view, with the current rally being good to likely test the high end of the range again soon.”

The report also provided a chart outlining several sectors in the market and whether they are emerging from bottoming trends or likely to gain momentum; and, according to Dickey, the picture looks better for a lot more sectors. 

“This bodes well for the market for the next 6–12 months and suggests that the consolidation period of the past two years could be resolved to the upside yet this year,” he added.

However, the outlook on gold has turned negative. After having been classified as a “buy” in early May, Dickey’s chart showed that the metal is showing signs of an “early bear trend” and should be a “sell.”

By Sarah Benali of Kitco News