Gold Market Update
Gold succeeded in breaking above the apex of its triangle and has become short-term overbought. More serious than this is that the Commercial short position has ballooned on this rise, making a short-term reaction likely. Unfortunately, the breakout above the triangle apex has not, so far, been by a margin sufficient to ensure that the triangle apex will provide effective support in the event of a reaction. The kind of "whipsaw" action that currently exists in this market is typical of what happens when the price breaks out late from a symmetrical triangle, late meaning at least three-quarters of the way along the triangle from its point of origin to the apex. Thus, gold first broke down from the triangle, then it broke out through the apex of the triangle and now it looks set to react again. The situation in silver is more extreme and therefore we can expect some wild gyrations when it breaks out from its much larger triangle, which it must do soon.
On the 1-year gold chart we can see the breakdown from the triangle, the sudden reversal and break back up through the apex of the triangle, and the overbought condition that has resulted, shown by the position of the RSI and MACD indicators. Moving averages are supportive, as they are swinging into bullish alignment. However, the risk of a significant short-term reaction is considered that much greater due to the big increase in the Commercial short position, shown on the COT chart below.
Gold stocks are at an inflexion point and must soon break above the down-channel line shown on the 1-year linear HUI chart to obviate the risk of a reaction back towards support in the 160 area. Traders should use a break of the uptrend in force since mid-May as a signal to stand aside.
The big picture for gold looks fine, with it continuing to ride its long-term 200-day moving average.
The dollar's advance looks to be stalling beneath the 90 level on the index, at and towards which there is substantial resistance. A break of the high trendline shown on the 6-month chart is expected to signal a retreat.