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Personal note: I have been invited to speak at the Mines
and Money London Conference on December the 3rd 2014. If you would like
to join you can receive 25% off your delegate pass by using my discount code:
ML875SPK.
Review:
- In my last analysis from 25th of July I wrote: "Swing traders need to be
patient and avoid trading in this whipsaw environment. Scaling in with limit
buy orders between US$1,281.00 and US$1,265.00 should be a promising recipe.
Stops should be placed below US$1,240.00."
- If you have followed my recommendation you should now hold a full Gold
trading position according to your money management rules. The tricky part
in the next couple of weeks will be to follow a trailing stop strategy that
keeps you in the market as long as possible.
 
Arguments for lower prices:
- 3-years downtrend: 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$1,390.00 and especially US$1,430.00
will indicate that the mid- and longer-term trend indeed has changed. A sustainable
move above US$1,320.00 would already brighten up the technical picture. I
recommend reading this very good article about precious
metals bear markets. Also the 8 year cycle for Gold should bring a significant
low around 2015/2016. It could mean that this bear market has to continue
for one or two more years. But we are very likely in the last quarter.
- Gold Monthly Chart: MACD sell signal active since november 2011
(this is extremely powerful and needs to change before one can really call
the bottom). The MACD indicator is getting very close to a buy signal. On
the 20-year chart you can see how low the MACD has fallen during the last
3 years and how huge the upside potential will be after the ongoing bear
market is done.
- Gold Weekly Chart: A series of lower highs and higher lows often
leads to a symmetrical triangle formation. After failing to reach the blue
triangle downtrend-line around US$1,365.00 in July Gold broke through the
triangle up trend at US$1,275.00 earlier this week. The move is not yet decisive
but bears are in control. MACD is choppy while Stochastic and RSI are somewhat
neutral. Overall Gold continues to move sideways as long as US$1,180.00 and
US$1,430.00 are not taken out.
- Gold Daily Chart: Gold is in a correction since 13th of July and
has lost nearly 6.3%. Gold is currently moving below the 200-MA (US$1,284.89)
and the 50-MA (US$1,304.49). MACD sell signal active while Stochastic is
oversold. RSI not yet oversold.
- Gold Stocks: HUI has been correcting sideways but the sentiment
is still sitting at slightly too optimistic levels (60%). Generally gold
stocks do not give the impression as if this correction is really done.
- CoT-Data: Latest commercial short position in Comex Gold Futures
was 123,548 contracts. The numbers have improved but do not yet signal a
lack of hedging activities by the smart money. CoT-Data for silver is neutral
as well.
- Physical demand: Especially China's Gold imports via Hong Kong have
been very weak. Without sufficient physical demand the paper gold market
is in control.
- US-Dollar: Since early may the US-Dollar has posted a massive rally
(+5.2%). The rally mainly was driven by a very weak Euro. So far the trend
is strong and supported by embedded Stochastic. But the US-Dollar is getting
very overbought and ripe for a correction.
- Gold/Silver Ratio: Currently at 66.13. Silver has been much weaker
than Gold in the last 6 weeks. As well the ratio is not confirming the recovery
since end of December.
- Volatility: The CBOE Gold Volatility Index is at low levels. A big
move in Gold is brewing. The tightening range in the gold-market has lulled
options market participants into a relative sense of complacency. Historically
when the GVZ has fallen to such low levels a large move in Gold was not far
away.
- Geopolitics: Although the situation in the Ukraine seems to escalate
Gold has been moving lower and did not act as a safe haven.
Arguments for higher prices:
- Higher Low: The up trend since the beginning of the year is still
valid as long as US$1,240.20 is not taken out.
- Gold Monthly log-Chart: Long term trend-line is still intact and
now around US$1,260.00. Any move below US$1,250.00 would technically mean
the end of this secular bull market! The MACD Indicator now is very close
to create a powerful long term buy signal.
- Gold Weekly Chart: Since May 2013 Gold is moving sideways between
US$1,180.00 and US$1,434.00. Next support is the lower Bollinger Band (US1,252.67).
If the blue triangle is still in play bulls could quickly gain back the lost
territory.
- Gold Daily Chart: The former overbought situation has totally vaporized
although on the daily chart Gold is not yet extremely oversold. The lower
end of the downtrend channel has been reached on Tuesday and Wednesday. Both
times Gold pushed higher and respected this crucial support. Stochastic needs
to hold above 30 and push higher to create a sustainable buy signal.
- GLD: Open gap around $122.70 has been finally filled.
- Gold-Stocks: The HUI Gold Bugs Index has been holding up pretty
well (basically moving sideways between 231 and 251 points since mid of June).
The overbought situation has been completely neutralized. Gold stocks have
been leading the sector higher since mid of last December.
- Sentiment: Short-term sentiment is slightly bullish as Gold has
been selling off. I have received quite some emails from worried readers
which is a good sign that we are close to a bottom. Long term sentiment for
Gold is still close to excessive pessimism.
- Seasonality: We are now in the best time of the year for precious
metals. After 3 years with heavy corrections in autumn I think this year
we could see a sustainable rally into December. Statistically best months
of the year are august, September and november.
- Euro: According to the latest CoT-Data the commercials are holding
the highest long position since July 2012. The sentiment for the Euro is
terrible. There is quite some potential for disappointment during today's
ECB meeting which could lead to a short squeeze and push the Euro higher.
As the US-Dollar is now very overbought Gold should profit from a stronger
Euro/weaker US-Dollar in the coming days and weeks. Also note that from mid
of September seasonality for the Euro is explosive and tends to last into
the final days of the year.
- Gold/Silver Ratio: The ratio did not confirm this week's sell off.
Silver is holding up well so far.
- India: The lower prices and the festival + wedding season seem to
attract buyers. The premium which is a reliable indicator for higher gold
prices has been rising from 0 to nearly US$25.00 during the last 2 weeks.
- CRB: The CRB Commodity Index is very oversold and ready for a bounce.
Conclusion:
- The correction in Gold has reached my target zone. It's not extremely oversold
but I think the next move will be to the upside. We could see more volatility
in the coming two trading days and maybe another test US$1.258.00 - US$1.260.00
but after that a bounce and a recovery to at least US$1,280.00 - US$1,285.00
is to be expected. Also a massive short squeeze similar to the one in early
June is quite possible. If Gold manages to regain the US$1,300.00 level I
think the probability for a rally into end of the year are increasing significantly.
In this case US$1,340.00 and US$1,390.00 will be the logical next targets.
- If instead Gold manages to only post a weak recovery and fails to regain
the broken up trend then the US$1,240.20 low from early June should soon
be under attack and the door towards US$1,180.00 would be already wide open.
- Swing traders who followed my recommendation should now hold a full Gold
trading position according to their personal money
management & position sizing rules. I think you can still enter this
swing trade below US$1,270.00. The stop remains at US$1,240.20 for now and
I will give my best to send out an update when there is a chance to move
the stop higher. In any case the stop at US$1,240.20 has to be respected
to protect your capital.
- Investors with a long-term perspective should have bought physical Gold
below US$1,285.00 during the last two weeks. The next buy limit makes sense
below US$1,240.00. Remember physical Gold is an insurance and will never
get to zero. You're just moving cash into a very safe conservative and liquid
asset class that will protect you and your family.
Long Term:
- Nothing has changed
- Precious Metals bull market continues and is moving step by step closer
to the final parabolic phase (could start now or within 1-2 years and last
for 2-5 years or even longer)
- Price target DowJones/Gold Ratio ca. 1:1
- Price target Gold/Silver Ratio ca. 10:1
- My personal price target remains at US$5,000.00 to US$8,900.00 for Gold
within the next 5-8 years
- Fundamentally, Gold should soon start the final 3rd phase of this long
term bull market. 1st stage saw the miners closing their hedge books, the
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.
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