A Golden Bottom
Once again we have witnessed a month filled with huge volatility in all three of the equities, commodities, and bond markets. These dramatic price swings are very confusing, so much so that a lot of investors no longer know their right from their left.
The truth is that the economic conditions in the US are deteriorating very fast and inflation is on the rise. Here in Europe we are experiencing the run-off of a weak dollar and US recession, with exports suffering and inflation running well above the ECB's target of 2%. All in all, this means that the environment for Gold and Silver is getting better and better from an inflationary perspective. Additionally, I expect the demand from China and India for Gold and Silver will continue to rise as their citizens become wealthier and their governments more diversified.
Chinese (state owned) companies have purchased stakes in many US corporations and banks these last several months and I wonder if this trend will continue given the volatility in the marketplace and bearish expectations for US equities. Here in Europe I also noticed that the Chinese are investing their dollars in different sectors, e.g. Ping An bought a 50% stake in Fortis Investments. Essentially, the Chinese are looking everywhere to buy assets for their dollars.
Perhaps instead of looking to standard equities or bonds, China should concentrate in building another Golden Dynasty, thereby setting a new gold standard for a world currency.
All charts are courtesy of www.stockcharts.com
The weekly chart in last month's update warned that there was a correction coming our way in Gold, and this expectation certainly proved correct. In last months' weekly chart, the first support was drawn at $900 and currently this support is being tested, with gold trying to form a low around this level.
The daily chart presented above tells us that we have to be cautious at this point, because there could be some more selling pressure in the coming month. The RSI, DMI (selling power) and MACD are all in selling mode, and a further drop towards the $850 support could be next before a new wave higher can begin. However, should Gold manage to rise back above the MA's and especially the last (B) high around $965, we will be handed our first clear signs that the correction has run its course.
Last month we expected a fierce decline, and that was precisely what we got. After the formation of a double top at the $21 level, Silver fell off a cliff and reached the $17 support. From there, a dead cat bounce occurred that erased almost 50% of the fall from the $21 dollar level. Currently, a new test of the support zone is in progress, and as long as Silver remains below both the MA's the definite bottom for this correction remains to be set.
Just like in Gold, we see a possible ABC-abc correction that could test the magenta trend line for support. The RSI, DMI (buying power) and MACD are indicating that the fall could end quickly, and there's some positive divergence showing up. All we need is for Silver to stay above the support zone and preferably rise back above the MA's very soon.
After Oil touched the predicted $110 level, the expected correction followed. Since then, the $100 level has been extensively tested. The above chart is showing us that Oil might be getting ready for a new jump higher. The $100 level and 50 d. MA should support Oil enough to let it gather new strength for a break above the newly formed magenta resistance line.
The RSI, DMI and MACD are still all in good shape and are positioning themselves for a new rise. If a breakout occurs, we could see Oils closing in on the $125 mark. However, should the support zone (and 50 d. MA) be taken out we can expect a decline towards one of the magenta trend lines at either the $95 or $85 level.
The USD is working very hard to establish some sort of higher low, but it is failing to do so. In order to get the job done, the USD has to break above the resistance at 73, which will be very difficult.
The USD did manage to produce a small uptrend, but this trend could be broken very quickly if the USD drops below the thin magenta line. If it does, we can most likely brace ourselves for another rapid decline, just as was witnessed when the USD broke below the 75 mark earlier this year.
As long as the USD is below the 50 d. MA, the negative scenario remains most likely. Only a break above the 50 d. MA can improve the outlook.
The weekly chart from last month's update indicated that the breakout in Copper would be followed by a back test of the broken consolidation pattern, i.e. the magenta line. We got the back test alright, with the correction after the breakout reaching as far as the support at $350.
From these oversold levels, a new rise began, leaving us with a V-shaped bottom in the chart. This current rise will target the highs made last month. We need a break above these levels to keep the positive outlook alive. If the breakout fails, a double top will damage the outlook because this would lead to negative divergence in the RSI and MACD, which is often the prelude to a big decline. In other words, the price could fall quickly should Copper bounce off the $400 level. But for now, the positive outlook remains most likely.