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Gold Weekly Update ~ Oct 19, 2014
Trend
Long Term ~ Bearish– Need a monthly close above 1560 for neutral trend without bearish potential. The key resistance area’s to regain new bull market leg are 1792 and 1804-1830
Medium Term ~ Neutral/Bearish– A monthly close below 1289 puts gold in full bearish trend for the medium term trend. However, it is possible that we have made an important low again at 1180. Odds still favor it will get broken before the end of the bear market.
Intermediate Term ~Neutral - A short term peak is due between Oct 23rd - 25th.
Resistance for this week 1243-1253 and 2nd tier 1272-1282
Support for this week 1218-1229 2nd tier 1202-1212
Last week’s resistance was listed at 1240-1250 and the high was 1250, Support was listed at 1212-1222 and the low was 1222.
Events~
The key event for this week should be the consumer price index on Wednesday. Since the short term cycle is due to peak Oct 23rd (plus or minus 72 hours) it leaves gold in a quandary as to whether we move higher into the report, or perhaps lower with a final push up during the latter half of the week. Odds favor a pullback into the end of the 1st week of November will follow.
 
Gold Overview
Gold prices pushed higher for a second consecutive week with the precious metal rallying 1.27% to trade at $1238 ahead of the New York close on Friday. The advance comes amid continued weakness in broader risk assets with all three major US indices down for a fourth consecutive week. Despite the risk-off environment, the key developments coming out of the U.S. economy may heavily impact gold prices this week after prices rebounded off key technical resistance mid-week.
Federal Reserve speakers have continued their Dovish rhetoric as the FOMC eyes the overwhelming disinflationary risks associated with a premature rate lift-off. Indeed, St. Louis Fed President James Bullard, who won’t be a voting member on the FOMC until 2016, undermined the bullish sentiment surrounding the U.S. dollar as the policymaker saw scope to extend the QE exit and we may see a growing number of central bank officials show a greater willingness to retain the highly accommodative policy stance for an extended period of time amid the subdued outlook for inflation.
As a result, the September consumer price index will largely be in focus this week, with consensus estimates calling for an uptick in the core reading to 1.8% y/y from a previous read of 1.7% y/y while the headline print is expected to downtick from 1.7% y/y to 1.6% y/y. With weakening energy prices, market participants may pay closer attention to the stickiness in core inflation as FOMC voting member Charles Plosser sees scope to normalize policy sooner rather than later.
From a technical standpoint, gold tested and defended a key resistance level noted in some of last week’s daily updates at $1243/44. This region is defined by the 38.2% retracement off the July high, the June close low and is the confluence of two resistance lines on our cycles chart (daily price chart).
Although the broader outlook for gold remains weighted to the downside, we cannot rule out continued strength into the monthly close on account of the weekly close above 1222.
Bottom line: near-term the trade remains constructive while above $1222 with only a break sub-$1206 putting the bears back in control. A breach above $1244 eyes more significant resistance at $1260/63 and $1283 where ultimately we would start looking for an intermediate term top.
Gold is battling between the bullish force of the flight to safety from stocks and the bearish force of a gathering global deflation. In a strong deflation, all assets will decline in value (including gold) – and the dollar will get stronger.
We are already seeing signs of a strong flight to the US dollar and a de-risking of positions. I expect a choppy gold market for some time – and a tough one to trade.
For the coming week odds favor a top between Oct 23rd – 25th and a pullback into the 1st week of November.
Gold Elliot Wave Count by Art Rholdan
I've been posting this bearish wave count for Gold since the breakdown of the triangle on the attached chart. Triangle formations are ones associated with Wave fours. If prices rise above the red line on this chart this count will be invalidated.
If this count is true prices should proceed much lower. But to what level? Thus far Wave IV retraced slightly above the 38.1% level.
On the chart attached I placed a Fibonacci extension ruler which provides possible price targets for wave v and the end of this five wave move decline. Typically wave five's decline is a Fibonacci multiple of the entire move from the start of the decline to the end of wave iii. This ruler provides those levels. Wave v can reach the .618, 1 or 1.618 level. That's a wide range with levels of 1144, 1081 and 980 respectively.
That's a wrap,
Art
Complicating the matter of wave counts is that silver and the HUI both seem to be in the fifth and final wave down whereas gold (by not making a new low) could still be in its 4th wave. That leaves a range of options open for price structure.
Commodities
Medium Term trend – Bearish
Moving averages – 298.10 – 299.16
The 2013 and 2014 lows are at 272 and the close last week was right at 272. The 2012 low is 266 and that number is the last support until the trend line near 250. If we hold 266 it is possible to move up for a couple of weeks and we could even go back and test the trend line we broke. Odds do favor that we’re eventually heading for the 250 area. In either case the overall trend remains down at the moment.
CYCLES
The medium term cycle bottomed on October 8th (15 days past the ideal date but still within the 2.5 week standard deviation).
The rebound into October 23rd (plus or minus 72 hours) is taking place and the short term cycle is due to peak this coming week. October 23rd – 25th has the best odds of producing a short term high.
Our current analysis is that gold might trend higher into year’s end as the triple bottom formation usually lasts longer and is a stronger cycle to bounce off of.
IF WE CLOSE ABOVE 1243/1245---Odds favor we peak this week in the 1252-1262 area or 1272-1282 zone. But we need that close to favor those prices. A pullback after this week should come into play lasting until the end of the first week of November. From there another rally into the Thanksgiving timeframe should develop. The strong resistance should be in the 1290-1302 area over the next month.
Gold Medium Term
Long Term Trend ~ Bearish since Oct 2013 @ 1361
Long term Moving averages 1508 – 1553
Medium Term Trend ~Neutral– The red moving average is above the blue so any close below 1180 now will favor a bearish trend. Odds favor 1290-1302 will be strong resistance and this area could be tested either in October or November.
Medium Term Moving averages 1289.21–1294.52
Gold held the 1180 bear market lows for the third time In the 15 months. Odds are not high for triple bottoms holding and thus we still have to figure there is one final wave down that is not complete. If we had made a new low it would have been possible to label the drop this year as a final wave 5 and our expectation for gold’s final bear market leg would be in place. Because we did not, the best fit is we are still in wave 4. That leaves a lot of options open for where gold is going over the next three months. On a maximum level, it is still possible for gold to move back to the 2014 highs near 1380 and still be in this wave 4. On a minimum level the 1240-1272 area is the first target. Interestingly, both silver and the gold stocks are now likely in their fifth and final wave.
Going to the chart below, gold penetrated the down trending gold line two weeks ago, but by the end of that week was back above it. Odds favor we’re heading for a test of the GREEN channel lines.
Silver Medium Term Weekly Price Chart
Long Term Trend ~ Bearish 25.00 – 27.81 - it takes a monthly close above 28.00 to neutralize the long term downtrend.
Medium Term Trend ~ Bearish 19.63 - 20.04
Odds favor that silver’s final bottom won’t be until we touch that next lower white trend line in the 15.30 area. That doesn’t mean we can’t get rallies in silver. The 1950-2025 area is very strong resistance on the medium term and until we get a monthly close above 2133, the long term downtrend will not be neutralized. In fact, we need a close above 28.00 for silver to fully neutralize its long term downtrend. All trends remain down for the moment.
Bond Chart Update
Moving Averages – 25.49 – 26.14
Medium Term – Bullish for lower rates
The moving averages are still in bullish mode for LOWER rates on a medium term basis and have been that way since February. Though we did not favor it, we have always said it was possible to return to the lower channel uptrend line and we have done so in just ONE WEEK.
That green trend line on the chart has been intact since the peak in 1981 and after toying with it for all of 2014, last week’s collapse leaves it intact and until that line is taken out, the long term trend of lower interest rates has not been reversed.
We suspect that the panic in the US dollar rise and plummeting of the Euro and the US stock market had the central bankers reversing their antics of the past few months.
Odds favor there should be strong support at the current trend line in the 10 year Treasury market.
US Dollar
Long Term Average ~ Bullish 81.17 – 80.18
Medium Term Trend ~ Bullish 81.40 - 80.68
While both the long and medium term trend is up on the USD, odds continue to favor our position that we have seen an intermediate term peak and a consolidation of two to four months is probable for the medium term.
On the shorter term a two to four week pullback has been in play and a low in November should develop with another attempt higher. For the moment we don’t see the highs in October being taken out. Resistance at 85.90-86.20 should remain as the stopping point for now.
With the Dollar could ultimately be headed for 92.50/ DX - potentially as high as 96.00/DX - in the next 12--18 months, the range around 87.00/DX represents the midpoint between ~79.00/DX (low of this year and low of last 3 years) and that upside target range. Thus the high we saw in the dollar should remain strong resistance over the two to four month basis. It takes a monthly close above 86.20-86.50 to favor a medium term correction is over and higher prices to be favored.
Euro
Medium Term Trend – bearish
As far as the Euro the next major long term support line is near 116. Not that we’re going there soon, but it is coming. Major resistance is 127-129 and of course the major downtrend line that’s above the 132.5 area. The trend remains down but a two to four week bounce is in play in the Euro.
HUI GOLD STOCKS INDEX
Long Term Trend ~ Bearish - Moving Average Trend - 326.23 – 385.05
Medium Term Trend ~ Neutral - Moving Average Trend – 226.23 – 228.44
Intermediate Term Trend ~ Bearish – Moving Average Trend – 194.77– 197.19
The HUI joined silver and made a new yearly low in October. Last week’s close was the lowest since Dec 5 2008. To understand how much devastation has occurred it gold stocks consider they were trading at higher levels in August of 2005 than they are now.
For all the talk that the gold stocks would be stronger than gold, the opposite has been in play, especially over the last two weeks. Now that the green trend line has given way odds favor the HUI is going to test the lower white lines. The next lower target is the 160-170 area. With that said, it is not out of the question that gold stocks can return to the 195-205 area.
STOCKS –USA
Long Term Trend ~ Bullish since 8/31/2011 @ 122 ~ Moving Averages 154.88 -144.94
The long term trend remain bullish. The long term trend since 8/31/2011 at 122. The medium term trend is now neutral at 190 for the first time since it went bullish on 2/17/2012 at 136.
Medium Term Trend ~ Neutral – Moving Averages 192.52 – 190.05
The medium term trend has moved from bearish to neutral. The 1820 low in the S&P should be support for now and resistance is now at two key spots the 1900-1930 level and the 1965-1975 area. As long as we are below those levels, the trend is no longer bullish on the medium term. If we should break the 1820 area, then the 1750-1775 area will become the next target on the S&P 500.
As we have been reporting, Stock Indices are giving multiple levels of confirmation to a developing top. While this does not automatically signal an immediate (major) breakdown, it does show that a multi-month reversal (lower) is in the making.
What Next
As discussed last week, we favored gold to turn up after October 8th and that should continue into the 23rd of the month (plus or minus 72 hours). The 1252-1262 area or 1272-1284 is this the most likely area we get into resistance. But in order to reach those targets, we must CLOSE ABOVE 1243/1245. The weekly close above 1222 does give potential for 1272-1284 to be tested in the coming weeks. On a monthly level the 1290-1302 area should be considered very strong resistance for now and also the key 1322 level.
Odds are highest for a peak this coming week between Oct 23rd and the 25th of the month and a pullback into the 1st week of November.
Bottom Line
Gold looks to have a medium term bottom in place and a reaction rally into Oct 23rd is most likely in play. It is possible that gold will be moving higher into the end of this year. A weekly close above 1272 would favor that scenario.
As far as whether the gold bear market is over is still up for debate. Odds do not favor it. However, a reaction rally to higher levels is still within the potentials. The bottom line is we remain in a trading range of 1180-1435 that has been in place for quite a while. We can’t eliminate the potential that this is a long term bottoming range and gold will exit the bear market once the consolidation has taken place. But a new low with one final wave down cannot be eliminated yet either. It would have been better to break the 1180 low and bottom 50 to 100 dollars lower. Interestingly gold stocks and silver seem to be already in their 5th and final wave down. IF we see the HUI reverse now and move above 206 then a medium term rally at the least should take place.
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