Sarah Benali Monday May 15, 2017 13:22
(Kitco News) - Gold is finding support after hitting a recent eight-week low, but one analyst is unfazed, noting that he is ‘more bearish than ever’ on the metal and sees prices falling into triple digits.
“We now see gold dropping to $300 over the next five to seven years,” wrote John DiCecco, independent market analyst and options trader for ChartMasterPro, in a Seeking Alpha post Monday.
DiCecco has been bearish on gold for some time, noting that in January he was forecasting the metal to drop to $700 an ounce.
Why the bearish forecast?
To the veteran options trader, gold is not only losing its safe-haven appeal, but is also heading into an economic environment that will be unfavorable for prices.
“Rising interest rates are kryptonite to gold,” he said. “Higher interest rates crush the value of gold…The last time the 1-Year US Treasury yield was at 6% (October 2000), gold was trading at $275 per ounce.”
Gold prices are gaining some momentum after hitting an 8-week low last week. June Comex gold futures last traded at $1,231.50 an ounce, up 0.31% on the day. All eyes are now on the June Federal Reserve meeting, with markets pricing in a 74% chance the central bank will raise interest rates by 25 basis-points.
Aside from interest rate pressures, DiCecco said there are other factors that will weigh on the yellow metal.
“Perhaps even more bearish for gold than rising interest rates is the birth of Bitcoin. For the first time in history investors now have a viable alternative to gold when they are looking for a safe harbor in a storm,” he explained.
According to Kitco’s Bitcoin data, the cryptocurrency is currently trading near an all-time high at $1,732.26.
Another gauge DiCecco said he uses is the Dow Jones Industrial Average to gold ratio, which at current levels is signaling more downside for the metal.
“[W]hen this ratio is below its 40-month EMA, it is a good time to hold or invest in gold: the ratio dropped below its 40-month EMA in March 2002 and stayed below it until April 2013. Over that time period gold climbed from $275 to a peak of $1,900,” he explained.
“But note that the ratio climbed above its 40-month EMA in April 2013, and that the price of gold has been declining ever since - the trend is clearly bearish for gold, unless, of course, the ratio dips below its 40-month EMA once again.”