By Chris Dieterich
This year’s explosive rally in precious metals leaves analysts at odds over whether the bum-rush higher for gold and silver can continue.
Some analysts contend that, yes, gold and silver have already busted out of the five-year bear market cycle. Others say to target silver. SPDR Gold Shares (GLD) added 1.1% in recent trading but and iShares Silver Trust (SLV) is up 3.2%.
But hang on. John LaForge, head of real asset strategy at Wells Fargo Investment Institute, warns against “biting on the rally” now that gold has climbed 27% so far in 2016 to $1,339 an ounce. He says that today’s price:
“Does not appear to be a good entry point for long-term gold investors. As for the best potential entry point, history suggests that gold could eventually retest its lows this cycle, around $1,050 an ounce.
Brexit has triggered an impressive gold rally since last Friday … [but] based on gold’s technical chart, $1,400 per ounce, possibly even $1,440, could be in the cards should the ‘fear’ trade reignite. Even if this does happen, we caution long-term investors not to bit on the rally. History says that short-term rallies are not likely to last inside a commodity bear super-cycle. And, in our opinion, gold is comfortably stuck inside a commodity bear super-cycle.”
What’s a commodity super-cycle? That’s what analysts call the cascade of falling prices that hit the likes of precious metals in 2011, food prices in 2012 and oil prices in 2014; the same bearish cycle appeared in 1980 and lasted through 1985. Here’s what the pattern looks like over time: