Piper Jaffray technical analyst Craig Johnson believes that gold’s “primary trend is still lower” based on a long-term downtrend that he thinks has been in the works for years.
Looking at a long-term chart of gold dating back almost a decade, Johnson sees a downtrend that began in 2011, when gold hit record all-time highs. Based on that downtrend, Johnson believes that gold’s rally this year is really just temporary and investors should be careful of an impending drop in gold prices — even if Donald Trump were to win Tuesday’s election.
“The recent price action that we’ve been seeing has been nothing but a relief rally,” Johnson said on Tuesday on CNBC’s “Power Lunch.” “I think if you’ve got a Trump win, you’ve got a slight push higher, but it’s going to have to take a move to about 1,350 or 1,400 to reverse that long-term downtrend.”
Gold has rallied more than 20 percent year to date, but Johnson believes that the yellow metal could tumble as much as 10 percent to as low as $1,150 if it were to follow the downtrend he believes is still taking place.
But that isn’t to say that gold prices couldn’t rise in the short-term should Trump pull through at the polls on Tuesday. Erin Gibbs, chief investment officer at S&P Global, believes that the correlation between gold and the election is still relatively strong.
“We’re looking at maybe a 45 percent correlation [between a Trump victory and gold prices],” said Gibbs. “So gold may even go up by 3 percent if he wins.”
Gold was down again on Tuesday after a dramatic drop on Monday.