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Gold and Silver
By: Florian Grummes | Wednesday, March 19, 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 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 call the bottom). Due to Gold's recent strong performance it looks like MACD could create a buy signal within the next 1-2 months.
- Gold Daily Chart: Gold started into the new week with the highest high of this rally but took out Friday's low later in the session. This is called a key reversal and is bearish. RSI turning down from overbought levels, MACD is about to create a sell signal and embedded Stochastic has been lost.
- Gold CoT-Data: Last week the commercial net-short position increased to 125,367 contracts.
- Gold/Silver Ratio: The ratio closed at 65.14 yesterday. Silver is lagging and does not confirm Gold's recent bull run.
- Junior Gold Miners (GDXJ): Already down 9.5% since last Friday. Looks like a correction in the mining sector is finally starting. But Golden Cross of 50-MA & 200-MA is about to happen soon and will support the GDXJ around 39 points.
- Seasonality: During march the seasonal window typically is negative for Gold and Silver. April instead tends to be a good month for precious metals. But the best buying opportunity normally shows up at the summer lows somewhere in June/July.
- Demand: On Monday the Indian Government again increased the import tariff value for Gold to reduce the high current account deficit. With the latest increase the supply crunch in the domestic indian market will likely continue. India's official Gold imports are expected to fall by 34% in 2014.
- Sentiment: Latest Kitco weekly Gold Survey showed 84% bulls. Another week above 80% and we have a strong contrarian sell signal. As well Sentiment Score from sentiment trader.com is at 75%. This is the highest level in the last 2.5 years.
- U.S.Dollar-Sentiment: According to sentimenttrader.com public opinion for the U.S. Dollar is at levels from where typically a rally started in the past four years. Of course within a bear market the sentiment can and will typically reach extreme levels of pessimism. But combined with a positive seasonality until summer the U.S. dollar might start a surprising recovery.
- Economic Calendar: This week's FED policy meeting might have a short-term negative influence on Gold. Typically Gold is down when the public focus is on the FED. Simply put, when central bankers speak a rising Gold price is not good for the image.
Arguments for higher prices:
- Since end of December Gold has been rising without looking back. With a US$25.00 trailing stop you could have caught most of the rally. Despite the setback since Monday morning the chart is still bullish. The critical support level around US$1,180.00 is far away. Now we have to see how far this correction goes.
- Gold Weekly Chart: Gold moved higher during the last 6 weeks. All indicators are still positive. Stochastic is embedded. RSI still has plenty of room to move higher.
- Gold Daily Chart: Gold is above it's 200-MA (US$1,302.23) and above it's rising 50-MA (US$1,292.83). Pretty soon we should see a gold cross of these two moving averages which will create a strong mid- & long-term buy signal.
- US-Dollar: Normally US-Dollar should have experienced some sort of safe haven buying during the last couple of weeks. Therefore something must be wrong with the US-Dollar (e.g. anemic business and economic activity in the U.S.). A weak U.S. dollar will support Gold.
- Geopolitical tensions due to Crimea conflict continue to raise and could lead to a disaster This crisis has the potential for the 3rd world-war. Let's hope that the political leaders will calm down and find a diplomatic solution. Unfortunately this is not very likely.
- Russian millionaires have lost about 10% in their currency since beginning of 2014. On top European Union imposing sanctions on wealthy Russian individuals. These people might flee into Gold to protect their wealth.
- The bursting of China's credit bubble is coming closer. On Monday a bigger Chinese real estate company got bankrupt. If China's rich people only move 5% of their assets into Gold the physical market will explode.
- Last time I argued that if Gold should close above US$1,350.00 the rally would continue. And indeed driven by the crimea crisis Gold moved up to US$1,392.00 but missed my target at US$1,430.00. Since Monday morning Gold is down more than US$45.00 and the P&F-Chart signals an end of the bull run for now. The geopolitical stress in the crimea had been priced in completely and the market sold the news on Monday. Seems to be illogic but that's how markets work.
- The important question now is: How far does this correction go and how
long will it take?
- One could use the simple Fibonacci retracements to get an indication: 38.2% = US$1,311.40, 50% = US$1,286.32 and 61.8% = US$1,261.23.
- Very likely is a test of the flattening 200-MA (US$1,302.23) and/or the rising 50-MA (US$1,292.83) in the coming days and weeks.
- Overall the picture remains bullish and already US$1,345.00 offers short-term support that could either hold or give away after today's FOMC meeting.
- The uptrend-line comes in around US$1,330.00 and should offer solid support during the first test.
- The rising lower daily Bollinger Band (US$1,308.52) is good support too.
- Therefore my worst case scenario would be a sell-off down to january's resistance around US$1.270,00.
- Personally I think the 200-MA will hold at least for the next two weeks and will be good for a bounce. With the golden cross soon in place Gold might start a new rally without dipping below US$1,300.00.
- Short-term Traders could place a buying order around US$1,330.00 and scale out into a recovery towards US$1,345.00/US$1,355.00/US$1,365.00. Or they could be more patient and wait for the first test of the 200-MA to initiate a position. Right now I don't see a good short entry anymore. Only a recovery towards US$1,382.00/US$1,430.00 combined with negative divergences would get me to short the Gold-market.
- Investors with a long-term perspective should concentrate on silver for now. A couple of weeks a go Silver exploded higher, but I told you to wait and be patient. Now it's the time to buy silver below US$20.80. Regarding Gold I'd be a physical buyer below US$1,3150.00, below US$1,290.00 and below US$1,270.00.
- 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.