Gold and Silver
1. Personal Note
In case you did not know, I am writing an extensive gold & silver analysis every two weeks in german... You can find it here....
Arguments for lower prices:
- After breaking through important support around US$1,640.00-1,625.00, Gold continues to be weak
- Gold is still trading way below falling 50-MA (US$1,642.85) and flat 200-MA (US$1,664.44)
- In mid February Gold has delivered a "death cross" as the 50-MA fell below the 200-MA
- On the weekly chart: MACD sell signal still active and Slow Stochastic starting to embed
- Gold is just barely holding above the recent lows at US$1,555.90. Any attempt to rally has failed at US$ 1,585.00
- Recovery during last 10 days was pretty muted. Doesn't look like the final lows are really in.
- Overall Gold still trapped in sideways movement (between US$1,525.00 and US$1,795.00) since September 2011
- COT Data for Silver still not really good, COT Data for Palladium & Platinum continue to be very negative
- There is no real macro economic driver visible yet that could have triggered this sell off. The market might have anticipated something that we are not aware of yet.
- Sentiment extremely bearish but what if Gold is indeed in a bear market and sentiment in gold stocks continues to be bad ?
Arguments for higher prices:
- Gold extremely oversold and close to weekly lower Bollinger Band (US$1,570.30).
- Massive support around US$1,525.00 - US$1,540.00 has not been tested.
- Since 2001 Gold never touched or went below monthly lower Bollinger Band (US$1,527.05)
- In the last two weeks Gold did not violate the initial low at US$1,555.90. We have see some backing and filling but each time Gold jumped higher impulsively and did not move below US$1,562.00 anytime. This is a very positive development and could mean a change in the gold market's character.
- As well Silver negated the downtrend and is now neutral. The Slow Stochastic "embedded status" has been lost, therefore Silver now is strongly overbought
- Latest COT Data for Gold (commercial shorts at -134K) are in the same range as last summer before Gold turned higher.
- Commercials are now net long the EURO
- Longer term, Gold in a similar correction pattern like 2008/2009. Although long in time, this correction for gold has been quite mild in terms of peak to trough magnitude.
- Sentiment continues to be extremely bearish and at levels from which rallies can be expected to start immediately.
- Mining stocks are showing first signs of bottom. As well there are some positive divergences in the indicators and the BPGDM Index (Gold Miners Bullish Percent Index) has fallen to its lowest level since the 2008 crash just above 3% which is a clear indication of extreme oversold conditions.
- Gold mining production cost are now on average at almost US$1,500.00 or even above. If Gold is falling below this number many mining companies will have to close down production and supply will be diminished rapidly.
- Seasonality until spring remains quite positive for precious metals sector although it does not seem to play any role at the moment in this sector.
- Central banks around the world continue to increase their gold holdings (South Korea, Russia)
- Never fight the FED. Unlimited QE -> money printing all over the world will push asset prices in all sectors higher...
- Throughout history, periods of massive money creation have always been inflationary and this time should be no different.
- Most importantly, the fundamental fight between the gold paper market (futures, derivatives...) versus the physical Gold market continues. Traders do their thing in the paper market but the focus for owners of physical Gold & Silver should be on the longer term. The big picture and the fundamental reasons to own Gold did not change at all. It remains the only insurance against these astronomical debt levels around the world.
- Gold has seen the fifth month of falling prices since October 2012. I have exactly called the high at US$1,795.00 but have turned bullish again way too early. Instead of holding above US$1,640.00 Gold broke through this important level and sold off down into US$1,555.90. There has been quite some damage to the technical picture. Now of course the big question is, how will Gold continue from here..... I don't know the future and neither do you. I believe it pays off to be prepared for every possible outcome. Therefore I came up with three different scenarios:
- 1st scenario: Gold has already seen the lows and is now preparing to start to move higher again. Sentiment is extremely bad, COT data is positive and bears could not take Gold down below US$1,555.90 anymore. First target will be US$1,620.00. By moving above US$1,640.00 a new uptrend will be in place and Gold should continue higher towards US$1.795,00 again. This scenario remains valid as long as Gold does not violate the recent lows between US$1,555.90 and US$1,564.00.
- 2nd scenario: Gold is in the process of bottoming. There might be still one last move lower to test monthly Bollinger Band and strong support around US$1,525.00 and US$1,540.00. Even a short move below US$1,500.00 followed by a fast and furious recovery is thinkable. This would kill the last bulls in the market
- 3rd scenario: Gold is indeed in a bear market and will break through US$1,530.00 soon. As there might be lots of stops waiting to be triggered and as it would be the fourth test of this zone it is very likely that US$1,530.00 will not hold. Technically this would be a huge sell signal and Gold could crash down to US$1,250.00 and US$1,050.00 very fast. This would be similar to the 1970s bull market. Actually you just have to multiply the numbers by 10 and end up in today's game. In the 70ies Gold went from US$35.00 to US$195.00. From there it lost nearly 50% in two years and went down to US$105.00. Finally between 1976 and 1980 Gold went up to US$890.00. By early 1976 most of the gold bulls had been killed and were missing out the final flight to the moon. Imagine if today Gold continues to go down while the stock market is breaking out to new highs! At US$1,250.00 and US$1,050.00 everybody will have sold his gold. To whom? Yes, to the smart money and the banksters. By this, the pressure in the Gold market will be so high that Gold could easily jumped to US$8.000,00 within a couple of years.
- So far I think scenario 1 has good chances to become reality. But if Gold has trouble to get back above US$1,620.00 and turns down again scenario 2 and 3 will be in place. A daily close below US$1,540.00 will shift my view towards scenario 3.
- 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.