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Review:
- In my last analysis from 19th of October I expected Gold to break down
below US$1,180.00 rather sooner than later. After a final push towards US$1,256.00
the bears took over again and Gold sold off all the way down to US$1,130.00.
- Unfortunately Gold never made it to my recommended entry level (US$1,275.00-US$1,285.00)
for a short sell swing-trade.
 
Arguments for lower prices:
- 3.3-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$1,350.00, 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$1,275.00 would already brighten
up the technical picture. 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: The long term up-trendline has been clearly
broken. The chart remains in bear market mode. The MACD indicator has been
moving away from a buy signal. The charts looks like gold will need to test
the strong support zone between US$1,050.00 and US$980.00 before a new up
trend can begin.
- Gold Weekly Chart: The bearish descending triangle continues
to be the important formation here. As well the MACD sell signal remains
in place. Gold is respecting the downtrend channel which creates heavy resistance
around US$1,230.00 and US$1,270.00.
- Gold Daily Chart: Short-term Gold is in an up trend but is
struggling to push sustainably through the US$1,200.00 level. The 50-MA (US$1,206.04)
and the upper Bollinger Band (US$1,219.06) are resistance. The chart is not
oversold anymore and the overall downtrend could resume anytime.
- Gold Stocks: HUI index crashed through important support
around 183 points. The recent recovery has brought the index back to this
zone which now acts as resistance. Tax loss selling might affect the mining
shares in the coming weeks.
- US-Dollar: One of the main catalysts behind the falling gold
price has been the strong US-Dollar. Besides some negative divergences there
are no technical signals yet that the dollar is topping out indeed.
Arguments for higher prices:
- Gold Monthly Chart: No bullish indication but prices have
recently spiked below the lower Bollinger Band which was unsustainable. Also
note that the rising lower Bollinger Band is supporting Gold at US$1,144.08.
- Gold Weekly Chart: Although Gold broke through the descending
triangle it did not happen in a very decisive manner. Instead Gold has already
regained the US$1,180.00 resistance and is close to the US$1,200.00 level
as well. The "ParabolicSar-Indicator" is about to switch to a long signal
if Gold pushes above US$1,207.60. RSI and stochastic seem to have turned
around already.
- Gold Daily Chart: With two big up days driven by short covering
gold is up nearly 6.8% in the last 13 trading days. On 7th of November a
morning star candle appeared on the chart and clearly indicated a short-term
reversal to the upside. The falling 50-MA (US1,206.04) is acting as a magnet
and Gold is oscillating around this moving average since about one week already.
The next target and at the same time next resistance is the upper Bollinger
Band (US$1,219.06). The slow stochastic indicator is about to embed with
both lines above 80 for three consecutive days. This is locking in the bullish
trend.
- Euro-Gold: €-Gold briefly touched the june lows at 907.00€ only
to turn higher again. The ascending triangle is still in play and it looks
like €-Gold wants to test the psychological level around 1,000.00€ soon.
A breakout would create an immediate upside potential to around 1,075.00€
- Sentiment: Besides the recent recovery sentiment remains
at excessive pessimism levels. During the first week of November many extremely
bearish forecasts appeared and some famous newsletter-writes even started
to finally sell gold short. This type of sentiment continues to support higher
prices as the majority is short gold hoping for lower prices.
- Seasonality: Generally seasonality now is very supportive
for gold and silver until mid of february. November tends to be the second
best month of the year while December statistically sums up with a minor
loss. Short-term seasonality is supportive until mid of December.
- CoT-Data: According to the latest CoT-Data the commercials
had a 70,997 net short position in COMEX Gold Futures last tuesday. The week
before this number was at 50.024 which coincides with a 10-month low. Clearly
the smart money is playing the gold-market well and now seems to be positioned
for higher gold prices again. At the same time the managed money (hedge funds
and commodity pool operators) ramped up their shorts to 19% open interest
which statistically is not sustainable. The CoT-Data now supports at least
a larger recovery for gold.
- Volatility: On November 7th the CBOE Gold Volatility Index
reached a 16-month high at 23.36 indicating high levels of fear and panic
in the gold market. Since then volatility has eased. Negative divergences
pointing to lower levels of volatility which limits downside risk in gold
price.
- Gold/Silver Ratio: The ratio reached my target of around
77 points and posted an island reversal candle outside the bollinger bands
on the same trading day. I think we have seen the lows of this bear market
in silver already. The zone around US$15.00 is massive support and silver
has been stronger than gold in the last two weeks pushing the ratio down
to currently 72.11 points. Even if gold will go down to US$1,050.00 I am
making the bold call that silver will not make a lower low anymore! Instead
it should have bottomed before Gold!
- Gold-Stocks: After being pushed down to an 8-year low at
146.01 points the HUI Gold Bugs Index managed to recover 24.2% within one
week. The Gold stocks starting to outperform gold again which is a positive
sign. The sector has been massively beaten down in the last 3.5 years and
remains in liquidation.
- US-Dollar: After a massive 6-month rally the market's most
crucial extreme is in the US-Dollar. The rally has pushed the currency to
a 4.5 year high and sentiment (Optix) to extreme levels. The recent Commitment
of Traders (CoT) report on the US-Dollar is coming off its most positive
readings in history. When sentiment readings like the CoT and Optix signal
extreme optimism, the opposite usually occurs... A falling US-Dollar is getting
more and more likely here.
Conclusion:
- Although the bullish arguments are not overwhelming at this point I think
this rally has more legs. Short-term Gold should climb until US$1,215.00-1,220.00.
After a setback that should hold above the US$1,175.00 level the 200-MA (US$1,276.58)
becomes the logical next target. As this moving average will start falling
in the next couple of weeks Gold might able to push towards US$1,255.00 until
january or february 2015. Overall I think this bear market is not over yet
and Gold will need to make another lower low (maybe in may or june 2015?).
But short-term the bulls have the advantage.
- Swing-traders could buy any setback towards US$1,175.00 with a hard stop
at US$1,145.00 and a target of US$1,255.00 which gives a reasonable risk/reward-ratio
of 1 to 2.66. Depending on future developments Gold around US$1,255.00 might
offer a good shorting opportunity in the coming months.
- Investors with a long-term perspective should continue to accumulate physical
Gold below US1,200.00. I recommend to put 10-20% of your net-worth into physical
Gold and Silver as an insurance and hedge against the growing imbalances
in our financial system.
Long term:
- Nothing has changed
- Precious Metals secular bull market continues and is moving step by step
closer to the final parabolic phase (could start 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 (for every ounce of gold there
are 9 ounces of silver mined, historically the ratio was at 15:1 during the
roman empire)
- My personal price target remains at US$5,000.00 to US$8,900.00 for Gold
within the next 5-8 years
- Fundamentally, when the current bear market is over Gold should 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 coming 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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