Gold and Silver: Update
Arguments for lower prices:
- Overall Gold still is in a downtrend. US$1,525.00 remains the line in the sand. Gold will need much more time to break through this heavy resistance. Only a move above US$1,430.00 will indicate that the mid- and longer-term trend indeed has changed.
- Gold Monthly Chart: MACD sell signal active since november 2011 (this is extremely powerful and needs to change before one can really call the bottom). It looks like MACD could create a buy signal within the next 1-3 months.
- Gold Weekly Chart: Besides MACD buy signal from early january no bullish indication. Gold is still moving inside the downtrend channel.
- Gold Daily Chart: Potential descending triangle should resolve to the downside. Most indicators are neutral at this time.
- Gold/Silver Ratio: The ratio (66.40) still is in an uptrend. Silver remains very weak.
- Gold Miners (GDX): Very weak, already testing the march lows but GDX and HUI are running into a bullish wedge.
- Gold CoT-Data: Commercial net-short position last tuesday at 106,010 contracts. This is not supportive for a new rally in Gold although we have seen much higher short positions already in the long-term context.
- Seasonality: Until mid of june the seasonal window is extremely bad. The best buying opportunity normally shows up at the summer lows somewhere in late june or early july.
- US-Dollar: While European central bank discusses negative interest rates the US-Dollar has been moving higher and could block any advance in Gold.
- China: Real estate bubble is real and dangerous. Either Chinese government will support the market with more liquidity or this could lead to a worldwide deflationary disaster which will initially take Gold down as well.
Arguments for higher prices:
- After an impressive rally from end of december until mid of march, followed by a sharp correction, Gold found good support at the january highs and has been moving sideways for the last 2 months. The new uptrend still remains in place.
- Gold Weekly Chart: Inside the downtrend channel but MACD buy signal from january still active. RSI neutral while Slow Stochastic is oversold.
- Gold Daily Chart: Gold has been oscillating around its 200-MA (US$1,299.31) and within a tight trading range. The triangle is about to break. The Bollinger Bands are extremely close now. Therefore pressure has been building up and should force a big move very soon. As long as Gold is holding above US$1,262.00 odds favor the upside.
- Palladium is in a clear uptrend and is leading Gold, Silver and Platinum higher.
- Sentiment: Gold is hated. Shares of the main gold ETF "GLD" are down by 40% since end of 2012. Sentiment towards the Precious Metals sector remains awful at this point - the sector has been abandoned - and this is exactly the situation you want to see before a major rally. Today I have been reading a survey from Credit Suisse stating that 71% of the participants (investors) expect a very bad development for the Gold price within the next couple of months. This is a contrarian´s dream.
- Sentiment: Kitco´s weekly Gold survey saw an average of around 50% bears the last three weeks. Today the numbers have slightly improved with 40.9% bulls and 31.8% bears.
- Sentiment: The Central Fund of Canada (which only holds gold & silver bullion) is trading at a big discount to its melt value right now. Who would sell his Gold below spot price if not the weak hands?
- Inflation: CRB Index (Continuous Commodity Index) is up around 12.8% since early january while US stock-market has been stagnating. It could be that we will get a similar development like in 2007/2008. Back then inflation was flowing out of stocks and into the commodity sector. The second half of the year therefore should see higher commodity prices.
- Rule Change: CME Group has lowered the margins for Gold and Silver Future contracts significantly.
- Rule Change: The silver fixing will end on august 14th 2014. What happens beyond that date is speculative at the moment. The silver market is headed for unknown territory. Unless a new system is created, buyers and sellers will either need to price their deals on the moving silver spot price, or use another daily benchmark such as the silver futures closing price on the U.S. Comex exchange. The end of the silver fix brings into question the future of the other precious metal benchmark fixes - especially Gold. The London Gold Fix's days are most likely numbered. The statistical evidence of price collusion is all too obvious.
- India: Narendra Modi, the business-friendly candidate of the Bharatiya Janata party, won the race to become the newest Prime Minister of India. He has been supported by the Bombay Bullion Association as well as by indian jewelry dealers. Indian stock market is already celebrating. It is expected that Modi will ease or end the import restriction on Gold and Silver. India´s culture is extremely strong linked to Gold and demand for jewelry could explode if the second largest gold import country eases the import restrictions. You always have to remember that people in countries like China and India do not have a retirement plan or insurance. They use Gold to save for the time when they are old. And Gold is currently trading at a 4 month low in indian rupee.
- India: Two days ago I talked with two people who do follow the gold market since decades very closely. Both surprisingly were not aware of the government change in India. I suppose the market in general is not yet aware of the huge impact this will have if indeed the new premier minister will lower or eliminate import restrictions. Today indian central bank already gave permission to 7 private gold companies to trade Gold.
- Russia: Continues to increase its Gold holdings while reducing their US-bonds. With respect to this there was a very important development this week when Russia and China signed a major gas contract that was 10 years in the making. This symbolizes the growing cooperation of these 2 powers as they move towards bypassing the US-Dollar as a medium of exchange.
- Stock-Market Divergences: Yen & US-Dollar are not confirming recent new highs in the stock-market.
- Stock-Market Sentiment: During the last two weeks I talked independently of each other with two very wealthy guys who have huge investments in the US & European stock market. Both vigorously reject my suggestion to at least hedge their open positions during the summer time. They are afraid to miss out and justify themselves that „sell in may and go away" did not work out the last couple of years.
- Stock-Market Sentiment: The private-equity firm Blackstone Group - one of the smartest real estate investor in the world - has been taking advantage of high prices to sell a lot of properties recently. That could be a sign of the top in the stock-market.
- My preferred scenario had been a stronger recovery in april followed by another sell off in may with Gold finding support around US$1,270.00 again. But Gold sold off immediately and is moving sideways since then.
- I now think chances are very high that we will get a breakout from this triangle and the recent trading range very soon (probably next week or first week in june). I strongly favor the upside mainly due to the high levels of pessimism I meet everywhere.
- If Gold already closes above US$1,308.00 I´d see the breakout as confirmed. A final move towards US$1,270.00 to shake out the last weak hands is always possible but is getting more and more unlikely. First price target to the upside is US$1,330.00 followed by US$1,355.00 and US$1,390.00. First two targets are easily possible until end of june because there has been a lot of pressure boiling up in the Gold market. Disastrous news from Ukraine this sunday could already trigger the expected breakout.
- Any daily close below US$1,260.00 probably means another test of US$1,200.00 - US$1,180.00. Therefore if Gold falls below US$1,260.00 all bullish bets must be off the table.
- Swing traders might buy into a confirmed breakout above US$1,308.00 with a stopp below this week´s low at US$1,284.00.
- Investors with a long-term perspective should continue to accumulate physical silver. I think it´s a great bargain right now. As well I think Gold is undervalued at the current prices and should be accumulated physically.
- Nothing has changed
- Precious Metals bull market continues and is moving step by step closer to the final parabolic phase (could start in summer 2014 & last for 2-3 years or even longer)
- Price target DowJones/Gold Ratio ca. 1:1
- Price target Gold/Silver Ratio ca. 10:1
- Fundamentally, Gold should soon start the final 3rd phase of this long term bull market. 1st stage saw the miners closing their hedge books, the 2nd stage continuously presented us news about institutions and central banks buying or repatriating gold. The evolving 3rd and finally parabolic stage will end in the distribution to small inexperienced new investors who will be subject to blind greed and frenzied panic.
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