Gold and Silver

Update 6th May 2013

Arguments for lower prices:

• Gold broke down from huge descending triangle and out of 2 year sideways zone. The old support between US$1,520.00 and US$1,540.00 now is massive resistance. It will take more time to regain this level.
• Recent recovery in mining stocks seems to be kind of muted (but could also be bottoming phase..)
• Movement out of Gold ETFs might just have started
• Seasonality for precious metals until end of July unfavorable
• The strong physical demand by small investors (especially in asia) and the rising premiums during the last three weeks could also be a contra indicator (e.g. in September 2008 we saw similar developments but final low was marked in November 2008)
• By devaluing its own currency Japan is exporting deflation to U.S. and Europe
• Europe continues to sink even deeper into recession

Arguments for higher prices:

• Gold now is behaving quite detached from stock market
• Potential bull flag points to test of 50-MA (US$1,537.46) and strong resistance around US$1,525.00
• COT Data very positive: Commercial Short Position at low levels last seen during deflationary crash in 2008. Small speculators have liquidated all their longs.
• Sentiment continues to be extremely bearish (Gold Public Opinion & Hulbert Gold still at multiyear lows, Central Fund of Canada trading below net asset value) and therefore a contrarian buy.
• Massive physical demand all over the world. Premiums for physical bullion still much higher.
• U.S. and European central bankers want to avoid deflation and will soon start to pump more liquidity into the system again
• Stock market reaching new highs while insiders are selling. German yellow press is headlining "DAX at new all time highs". The article is suggesting that stocks can only go higher from here. A clear contrarian sell signal. As well "sell in may" seasonality points to a cyclical high in stocks. Gold has decoupled itself from stock market and might move higher after initial confusion/setback.

Conclusion:

• The Gold price already has recovered US$165.00 from the recent lows. This is impressive. The last couple of days have been volatile but Gold managed to always close above US$1,450.00. There is a clear bullish undertone and the formation seems to be a bull flag.
• I expect a test of broken support around US$1,525.00 within the next couple of days or maybe two weeks. From here some form of a sell off should follow. Maybe together with stock market correction. Given the very constructive COT-Data Gold might setback to just around US$1,445.00. From here we could see another test of former support zone around US$1,525.00.

Long term:

• Nothing has changed
• Precious Metals bull market continues and is moving step by step closer to the final parabolic phase (could start in autumn 2013 & 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 is still in 2nd phase of this long term bull market 1st stage saw the miners closing their hedge books, 2nd stage is continuously presenting us news about institutions and central banks buying or repatriating gold. 3rd and finally parabolic stage will bring the distribution to small inexperienced new investors who then will be acting in blind panic.