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After gold
and silver got hit hard last week, some of you probably wonder if that was
the end of the 10 year+ bull market for precious metals.
In this
article, we will describe both the Bull & Bear Cases for Gold, Silver and
Stocks and we will also make some interesting comparisons.
Let's start
off with the Bull case for gold.
Gold hit the
red resistance line, which also halted gold's rise in 2006 and 2008. I drew
Fibonacci Retracement levels from the Bottom in 2001 to the "Inflation
Adjusted Alltime High" around $2,300. We can see that the Fibonacci
Levels have done their job in the past. Will we hit the 61.80% level again
(and this hit the orange line, which is right between the red resistance line
and the green support line)? That level comes in at $1,516 and is the July
2011 breakout level.
 
Chart courtesy stockcharts.com
Notice that
the comparison with 1979 also gives us support at or near the low $1,500's.
When we
reached oversold levels on the RSI combined with a BPGDM Index below 50, it
often marked a bottom for gold:
Chart courtesy stockcharts.com
When we look
at the entire bull market of Gold since 2001, we can see that the 10 Months
Exponential Moving Average was a good entry level. Right now, it is around
$1,550. Price sometimes dipped slightly below this level, so once again, we
might see the low $1,500's.
Chart courtesy stockcharts.com
When we look
at the Weekly chart of Gold, we can see that the 30EMA has often supported
the Gold Price.
Chart courtesy stockcharts.com
Actually,
the 150 Days EMA, which is a proxy for the 30 Weeks EMA, also provided
support during the 1980 price explosion:
When we look
at the following chart, we can see that the USD broke above the pink
resistance line last week. Price is now also above the 200EMA, which acted as
support and resistance in the past. This is a Bullish Development, and should
be bad for precious metals and Equity Markets.
However,
when we look at the gold price (2nd part of the chart), we can see that the
150EMA has not been broken to the downside yet.
For GDX
(Market Vectors Gold Miners ETF) the 400EMA seems to be the level of
importance. It has been tagged on Friday.
Silver looks
much worse than Gold and Gold miners right now. That's the reason why I
haven't touched silver at all since late April, when I expected Silver to
crash. For the first time since 2008, the price has broken decisively below
the 150EMA, which seems to be the level of importance (for both Gold and
Silver).
Last but not
Least, the SP500 also dropped below its 400EMA.
So unless we
are about to see 2008 all over again, I think Gold and GDX are in the best
position.
Silver is a
broken parabola, and it takes time, a lot of time to reach new highs (if
ever), as I have written several times.
The stock
markets need to recover their 400EMA before they are in a favorable position.
Chart courtesy stockcharts.com
Chart courtesy stockcharts.com
I do have
something positive to say about silver: Price is now 21.41% below its 50EMA.
Whenever price fell more than 10% below its 50EMA during this bull market,
silver was always at or near a bottom, EXCEPT for 2008. If we are about to
see 2008 all over again, or if the commodity bubble burst last week, silver
could drop another 50% from current levels, if not more...
Chart courtesy stockcharts.com
Here's what
could happen if we are about to see 2008 all over again (this is an updated
version of a chart I published
on July 20th)
Chart courtesy Prorealtime.com
Here's
another positive picture for silver, which I posted a
while ago:
Silver
Wheaton looks very bad at this point, as it is forming a Head & Shoulders
Pattern:
Chart courtesy Prorealtime.com
As you
probably know by now, I am fascinated by historical comparisons. Here's my
latest one: The gold price compared to the Shanghai Bubble:
Chart courtesy stockcharts.com
I calculated
the Gold-to-10Year Yields, which got me the following chart:
The ratio
hit a long term resistance line a couple of days ago, just like it was in the
early 80's.
It shows
that gold has never been more expensive relative to bond yields.
On the other
hand, low yields mean expensive bonds.
In my
opinion, it shows that both gold and bonds have never been more expensive
TOGETHER ever before.
I then
decided to plot the Gold:10Years ratio together with the SP500:
Isn't it
interesting to see that bull markets in the Gold:10YR Yields ratio are in
line with Bear markets in the SP500, and that Bear Markets in the Ratio are
accompanied by Bull markets in Equity markets?
To end this
article, I compared the Dow Jones index now with the Dow Jones in the '70s:
Chart courtesy Prorealtime.com
The Total
Return index shows a similar picture:
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