Gold and Silver
Update 10th February 2013
1. Personal Note
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Arguments for lower prices:
- Gold continues to be weak short term, still in downtrend since early October, so far lower highs and lower lows (a trend in motion stays in motion)
- Gold still struggling with falling 50-MA (US$1,678.95), testing support at 200-MA (US$1,664.99)
- Gold overall still trapped in sideways movement (between US$1,525.00 and US$1,795.00) since September 2011
- Latest COT Data for gold neutral but for silver still negative, COT Data for palladium & platinum very negative
- Mining Stocks only with muted recovery, possible long term bearish HS-Pattern completed if HUI-Index closes below 375-358 points
- VIX (Chicago Board Options Exchange Market Volatility Index) at 3-year low. Distribution from strong hands to weak hands probably not yet completed but strong correction in worldwide stock markets is coming closer ("Risk-Off"... could affect precious metals in both ways.. either with a flight to safety or sell off due to deleveraging in the future markets)
Arguments for higher prices:
- Possible Head & Should Pattern in Gold if 1,635.00US$ is not violated anymore. This would give a potential target around US$1,765.00 if Gold manages to break the downtrend channel (US$1,678.00) and strong resistance at US$1,695.00
- Weekly stochastic has turned up out of oversold condition
- Support along last summer highs around US$1,625.00-1,640.00 has held so far
- Longer term, Gold in similar correction pattern like 2008/2009. Breakout above US$1,920.00 still expected to happen in late summer 2013
- Breakout and new all time highs for Gold in Japanese Yen (although now overbought and Japanese Yen has put in a short term low ...)
- Despite strong sell off in Euro and strength in Dollar, Gold continues to trade in very tight range
- CME (Chicago Mercantile Exchange), the biggest operator of U.S. futures exchanges, lowered initial margins on the benchmark COMEX 100-ounce gold futures contract by 10 percent to $5,940 per contract from $6,600. It also cut maintenance margins by 10 percent to $5,400 from $6,000. In theory this should make it cheaper to take on positions and just might entice the sleeping speculators to add new positions in gold.
- Sentiment continues to be extremely bearish and at levels from which rallies can be expected to start. Especially the mining stocks are now feared and hated.
- Seasonality until spring quite positive for precious metals sector
- Platinum now US$45.00 more expensive than Gold due to heavy problems in south african mining industry.
- Central banks around the world continue to increase their gold holdings (Russia, Turkey, Kazakhstan)
- German central bank announced reallocation of its gold holdings. It will take 7 years to deliver just 300tons of gold from US to Germany! Clear sign that public confidence in paper money is decreasing worldwide because german central bank had to act due to huge public pressure.
- Worldwide Currency War continues. Japanese Yen Index has lost more than 18% in the last 5 month (against the Euro even 35% since last July). Now european central bankers trying to talk euro weak. Currency War will decrease confidence in paper money and distort the markets.
- Never fight the FED. Unlimited QE -> money printing all over the world will push asset prices in all sectors higher...
- Since bottoming last July, yields on 10-year Treasuries have rebounded and passed 2% in January for the first time since last April. Investors have finally woken up to the fact that there is no yield available in bonds. The amount of quantitative easing that we have experienced - $3 trillion worth - is working its way through the system and is influencing the real economy.
- Throughout history, periods of massive money creation have always been inflationary and this time should be no different.
- Gold continues to trade within a tight range between 50MA and 200MA and within a consolidation triangle. A breakout is imminent.
- Throughout the history of this gold bull market right before any big up move there was always a final shakeout. Therefore I believe we should see a false breakdown to around US$1,640.00 within the next one or two weeks. From here Gold should start new uptrend that will take out heave resistance around US$1,800.00 later in spring.
- Worst case to the downside should be the weekly Bollinger Band around US$1,623.79 but already daily Bollinger Band (US$1,653.37) will offer strong support.
- On the upside US$1,696.00 - US$1,704.00 continues to be the line in the sand. If Gold can move above this strong resistance zone the probability for a continuation to US$1,795.00 increases dramatically. This will signal that the 17-month sideways consolidation pattern is about to end soon because bears could not push prices back below to US$1,550.00 - 1,525.00.
- Only if Gold breaks through massive support around US$1,635.00-1,625.00 a big wave of panic selling will be triggered and we should see another test of US$1,535.00. This scenario remains unlikely.
- Fundamentally, the FED and all the other central banks continue to hide the true financial situation with massive liquidity injections into the system. The purpose of these asset purchases is a more subtle financing of all the government deficits. In the long run this is highly inflationary. In the short term this leads to distortion & disconnection in financial markets. Therefore the stock market does not represent the real economy anymore.
- Nothing has changed
- Precious Metals bull market continues and is moving step by step closer to the final parabolic phase (could start in 2013 & last for 2-3 years or maybe later)
- Price target DowJones/Gold Ratio ca. 1:1
- Price target Gold/Silver Ratio ca. 10:1
- Fundamentally, Gold is still in 2nd phase of this long term bull market 1st stage saw the miners closing their hedge books, 2nd stage is continuously presenting us news about institutions and central banks buying or repatriating gold. 3rd and finally parabolic stage will bring the distribution to small inexperienced new investors who then will be acting in blind panic.