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Gold and Silver
By: Florian Grummes | Thursday, February 6, 2014
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 trend has indeed changed.
- Gold Monthly Chart: MACD sell signal active since November 2011 (this is extremely powerful and needs to change before one can call the bottom, but MACD histogram is already turning higher from oversold levels.
- Gold Daily Chart: Gold still trading below 200-MA (US$1,315.69). That's the definition of a bear market. But this important moving average is stabilizing. A daily close below US$1,180.00 would signal that the downtrend continues and could lead to the final stage of this multiyear correction targeting US$1,035.00 - US$980.00.
- Gold CoT-Data: Commercials strongly increased their short position on Gold-Futures while the speculative funds are holding the highest long position since end of October 2013. This indicates that Gold is facing strong resistance at higher price levels.
- The Gold/Silver-Ratio (63.46) is still in an up trend. In a new bull market this needs to change as Silver should act stronger than gold. But as well it has to be said that Silver always joins the party later and that it is typically lagging Gold in the beginning of a new up trend.
- The US-Dollar continues to strengthening and has seasonal support until the summertime. Should the turmoil in emerging markets continue the US-Dollar will get stronger as speculative money is returning to US. Generally a stronger US-Dollar is not supportive for precious metals.
- Risk-Off mentality and shrinking liquidity (esp. in China) could affect the precious metals sector as well.
- India continues to make Gold imports more difficult.
- Sentiment has shifted very fast in the stock-market therefore an immediate burst is unlikely. Rather a recovery should start soon or later and last until end of April. Gold and equities have been moving in opposite direction since end of 2012.
Arguments for higher prices:
- Since end of December Gold has managed to climb slowly higher creating a series of higher highs and higher lows. The critical support level around US$1,180.00 is currently more than US$75.00 away. This price action has a different character than the last three fast advances which turned out to be just a short squeeze/bear market rally.
- Gold Weekly Chart: MACD buy signal is still active and supporting the bulls. The MACD histogram is moving sideways in positive territory. At the same time the Slow Stochastic Oscillator continues to move up from oversold levels. RSI is neutral.
- Gold Daily Chart: Gold is holding up well above the flattening 50-MA (US$1,235.70) and is running against the multi month downtrend-line (US$1,255.00 - US$1,275.00) since 10 trading sessions. It looks like a breakout becomes more and more likely. The lower Bollinger Band (US$1,225.58) is moving up and should offer good support. The MACD continues with a buy signal and Slow Stochastic is turning up again as well. Next target remains the 200-MA (US$1,315.69).
- Gold in EURO: In Euro Gold is slowly moving higher, targeting the 200-MA (985.00€).
- Silver is basically moving sideways since early December and its Bollinger Bands running sideways too. This type of movement builds pressure and will end in an explosive move to the up- or downside. The technical situation in Silver supports a breakout to the upside.
- Junior Gold Miners (GDXJ) are clearly outperforming Gold and might be leading the sector now.
- The Senior Gold Miners are running their business with all-in sustaining costs of at least US$1,075.00 to US$1,175.00. Some of them with even much higher production costs. If the price of Gold trades below US$1,200.00 they will have to shut down their activities soon or later.
- Many Explorer & Junior Miners are also facing bankruptcy at the moment. Nearly 58% of the listed Juniors are trading below US$0.10 a share and most of them have less than US$200,000.00 left in capital. Many of them will probably not survive. This means that we should not expect any big discoveries in the next couple of years as most of them facing huge challenges due to decreased funding and costly & complex exploration.
- Public Opinion & Sentiment: Sentiment for precious metal continues to rebound from extremely negative levels but still has a long way to go before one can call it optimistic or even greedy.
- Seasonality: The seasonal cycle remains very positive until mid of February for the precious metals sector.
- S&P now is in downtrend after massive sell-off during the last two weeks. With this recent price correction fear is starting to enter the market and money is rotating out of stocks and into "risk-off assets" like Gold and bonds.
- The US-Presidential Cycle is supportive for the next 12 months as the mid-term election years are traditionally good for Gold and Silver.
- Long term Fundamental: While the public is celebrating 100 years of Federal Reserve System, the balance sheet of the FED is now above US$4 trillion. The level has climbed by more than US$1 trillion over the course of 2013 as the central bank continued its bond-buying program launched in September 2012.
- As expected, the recent price action in the gold-market has been kind of shaky but with a clear bullish undertone. Gold has been trading around and above the 50-MA (US$1,235.70) for more than 14 trading sessions, therefore this moving average now is acting as solid support.
- So far the bears have been defending the heavy resistance between US$1,255.00 and US$1,275.00 but I think a breakout to the upside is imminent and just a question of time.
- The next target remains the 200-MA (US$1,315.69). Another downtrend-line is already waiting there too. On top the weekly Bollinger Band (US$1,348.42) is moving quickly into this zone as well. Obviously US$1,315.00 to US$1,335.00 is the next heavy resistance.
- Traders can buy a clear breakout above US$1,275.00 for a short-term speculation but need to be very careful as they would be buying strength. As well they need to take any winnings quickly as I do not expect Gold to take out US$1,330.00 very soon. Instead I believe that should a breakout indeed occur now, Gold will test the former resistance (US$1,255.00 - US$1,275.00) later in February for support before it can start to take out the 200-MA (US$1,315.69) towards march/April.
- Any daily close below US$1,235.00 is a clear warning sign that Gold is doing something else and would invite the bears to test the December lows.
- Investors with a long term perspective should continue to accumulate physical Gold and Silver while they are beaten down and trading close to production cost.
- 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 maybe later)
- 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 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.