The precious metals sector sharply reversed course after the Federal Reserve
hinted that it may raise rates at its next meeting. This about face from the
Fed was enough to effectively end the fledgling rally that began in the summer
and threatened to take metals and miners higher to their 400-day moving averages.
The prevailing thought was the Fed was on hold for a while and this paved the
way for more strength in the precious metals complex. Thoughts be damned! The
Fed has whipsawed gold bugs (and me) again.
Below we show the weekly candle charts for Gold and Silver and their 40-week
(200-day) moving averages. Gold tested moving average resistance in each of
the past three weeks. The Fed decision induced a nasty reversal on the chart
as Gold went from trading above resistance to well below it. Gold also lost
the key weekly pivot point around $1150-$1160. Silver formed the same bearish
reversal after testing moving average resistance during each of the past four
weeks. (Another important point is Gold failed at $1180 on the monthly chart).
The implications of the dramatic reversal could be that the metals have new
lows ahead and that Gold could have a date with $1000/oz in the near future.
In order to give the current bear market in Gold proper context we looked
at the absolute longest bear markets from the past. It turns out that three
bears have lasted a full five years before a sustained rebound. We already
know of the 1987 to 1993 bear. In regards to the 1996 to 2001 bull, Gold made
its price low in 1999 yet didn't bottom in terms of time until 2001. Something
similar took place during the 1980 to 1985 bear market. History suggests the
current bear market could last another nine or ten months.
If the Fed said something different then bullish conditions may have persisted
but in any case we always have to respect the market. The precious metals sector
formed a clear bearish reversal at important resistance. It augurs badly for
gold bulls and gold bugs. While we strongly believe Gold remains in a secular
bull market, we believe it's possible that the current bear market could last
well into 2016. The specter of $950 to $1000 Gold looms larger now and readers
are advised to cut losses and prepare portfolios for the bearish scenario.
