Long-term trends suggest gold and related exchange traded funds could head lower as the U.S. dollar continues to appreciate.
According to Chris Kimble of Kimble Charting Solutions, the Swiss franc and gold both peaked around the same time in 2011 and have been stuck in a downtrend ever since.
Now, Kimble argues that the long-term charts reveal that the franc and gold both dipped below their 10-year support lines and both touched the underside of resistance at about the same time Additionally, the assets are breaking below prior monthly closing lows.
The CurrencyShares Swiss Franc Trust (NYSEArca: FXF) has declined 7.3% over the past month and decreased 12.5% over the past year. The U.S. dollar is now trading close to parity with the Swiss franc.
Meanwhile, the SPDR Gold Shares (NYSEArca: GLD) fell 6.0% over the past month and dipped 13.7% over the past year, with gold futures sitting around $1,160 per ounce.
Consequently, as the long-term trend breaks down, Kimble believes the two markets could continue to slide over the short-term.
With the U.S. dollar on the rise, other market observers are also anticipating further weakness in the gold market as the precious metal becomes more expensive for foreign buyers.
“Gold really got spooked by the dollar strength today,” Frank Lesh, a broker and futures analyst with FuturePath Trading LLC, said in a Wall Street Journal article. “If we get down there, I’d be very surprised if we didn’t” reach new multiyear lows.
Additionally, many traders have been dumping the opposite end of the dollar trade after the improving U.S. economic data raised speculation that the Federal Reserve would hike interest rates some time in June. If the Fed tightened its monetary policy, the U.S. dollar would further appreciate against foreign currencies and weigh on gold prices.
Source: Kimble Charting Solutions
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Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own shares of GLD.