Gold Price Forecast: Will The Brexit Sustain Higher Gold Prices?

Britain shocked the world by voting to leave the EU. It will take several weeks and months to form an exit strategy; as a global recession is guaranteed. The people of the world are fed up with status quo politicians…and hunger for change. Gold prices should thrive in this troubling environment. It's only a matter of time before there is more global money printing.

Negative Factors

Precious metals rallied sharply on the Brexit vote, but there are negative factors developing to consider. Commercial hedgers (smart money) have increased their short positions to record levels in commodities such as gold, sugar, and agriculture. To me, this suggests the potential for a quick wave of deflation.

Both junior and senior gold miners were up significantly on Friday, but neither closed above their key reversal days established on June 16th. Understandably, a difficult task while US stocks were down over 3% on average.

There was substantial Selling on Strength (SOS) numbers in GDX for Friday (see charts below). These figures pop-up around significant tops in gold and miners. It is likely this is related to the global selloff. However, until miners close above the outlined levels, I remain somewhat skeptical.

Gold and the US Dollar were up significantly on Friday. Though they occasionally rise in tandem, I'm more inclined to believe that one of them is being disingenuous. I'm interested to see if they decouple next week -- and one stops rising. The dollar is traditionally viewed as a safe haven.

Monday Trading

Whenever a price shock like this occurs on a Friday, there is always the potential for continued selling come Monday morning from panicked investors worried sick over the weekend. Moreover, margin calls will exacerbate selling. After the contagion ends, a temporary rally will ensue that will likely last a few days. Once complete, we’ll assess the structure to plot a forecast.

US Dollar Weekly Chart

The dollar ended the week positive with a close just above the 50-week EMA. It will take breaking above the dashed trend line to make another run at the 100 level again.

Gold Quarterly Chart

The second quarter (Q2) comes to a close this Thursday. If prices manage to stay (close) above the 16-Quarter MA ($1,306.19), I will officially call a bottom to this 8-year low at $1,045.40.

Gold Weekly Chart

Weekly gold prices closed above the 200-week MA, and above the $1,306 May high. The $1,201.50 low is now approved as the intermediate cycle bottom. OBV is still climbing.  A break to new highs will authorize this uptrend.

Silver Weekly Chart

Silver prices made a new price high…but closed below the previous cycle high $18.06. The $18.50-$19.00 level is the next zone of challenge for prices. A confirmed 6-month low was established at $15.83.

Silver Daily Chart

I'd like to see daily silver prices maintain closes above the $18.06 level next week.

HUI Weekly Chart

The HUI closed above the 200-week MA for the first time in since 2012. There is a negative divergence in stochastics (above) that I would like to see resolved.

GDX Chart

Prices moved higher in the face of weak stocks, but were unable to close above the $27.03 high. I can't eliminate the false breakout scenario until prices close consecutively above $27.03. The $22.13 low will likely be labeled as the 6-month low once the key reversal day is eliminated.

Below are the GDX Selling on Strength (SOS) numbers, courtesy of the WSJ Market Data Group.

GDXJ Chart

A black candle formed and prices didn't close above the June 16th high ($42.32). The false breakout target is still live until this occurs.

WTIC Chart

Oil was unable to close solidly above the highlighted $50.00 level, and thus, rolled over Friday. The combination of a strong dollar and recession fears could drive prices lower to our projected target.

Summary

Several factors support higher gold and silver prices. However, the large commercial short positions and excessive optimism are concerning. My original cycle work projected a major cycle low arriving in January of 2017. Negative interest rates may have forced an early termination of that forecast.  I will be watching the correlation between the US dollar and gold for clues next week. Indeed, precious metal Investors are living in exciting and profitable times.