Commodities Analysis & Opinion

What Happens to Gold After U.S. Midterm Elections?

 

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Remember when Trump was elected as the U.S. President? And remember what happened to the price of gold at that time?

Gold Weekly Chart

I marked in on the above chart, but to make it clearer, I’ll zoom in.

Gold Daily Chart

Gold truly soared during the 2016 U.S. Presidential elections, but it didn’t change the medium-term trend — it remained down despite the short-term price spike.

The election-based price spike took place after a corrective short-term rally.

And what happened yesterday and in the preceding days?

Gold Daily Chart

Gold moved sharply higher after a short-term rally. The history tends to rhyme, so I doubt that yesterday’s price action is able to trigger a sustainable rally.

That was just a single daily close above the declining, medium-term resistance line (marked with blue), and the 50-day moving average. Will this breakout be confirmed? Again, I doubt it.

Interestingly, based on yesterday’s rally, the gold-based RSI moved slightly above 60. That’s exactly what happened back in 2016 after the U.S. Presidential elections. And that was a local top – right before a massive slide. Gold then declined by almost 16% in less than two following months.

If the same was to happen now, gold would move to about $1,450. And yes, that would be in perfect tune with my previous analyses. That’s where we have strong support based on the 2020 lows.

Let’s keep in mind that the two key fundamental drivers of gold price are: the real interest rates, and the US Dollar Index.

The real interest rates are clearly headed higher (nominal rates are going up, and eventually inflation is likely to come down), which is bearish for gold.

And the US Dollar Index…

USD Daily Chart

All in all, despite the very recent upswing in gold, the outlook for the precious metals sector remains very bearish in the medium term.

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