After two weeks of moving and filling around the US$1,200 level Gold finally
broke down on Friday. I had anticipated the sideways trap since early April
and explained my bearish outlook in my recent analysis as well. Last Monday
I told my german
readers that I see an increased probability that Gold is starting to crash
down towards $1,035 in the coming weeks. Actually I had lay out this scenario
for a long time already. I feel like we are there now.
Closing last week just below the former support level at $1,180 Gold now is
standing right at that cliff.... The next support is $1,140, below that number
the door is open towards the $1,050's... Doesn't look good in the short-term
but should we get the necessary final sell-off down to $1,035 the bear market
will be over very soon! That is more than exiting because the precious metal
sector is so beaten down that once this bear market is over Gold, Silver and
the mining stocks should return as a Phoenix from the ashes.
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Midas Touch Gold Model Summary
Last weekend the model went to a neutral state. This week the model moved
back into a Sell/Bearish Mode. Compared to last week Volatility has
been rising. As well Seasonality is now negative. Another bearish development
was the sell signal in the Gold/Silver-Ratio as well as the fact that
Gold now is down against all four major currencies over the last month.
On the positive site we have a new buy signal for Gold in Indian Rupee. Another
buy signal came in on Friday due to the weak US-Dollar Daily Chart which
could give some support for Gold.
Today I decided to include another technical signal: Gold in Chinese Yuan.
Without a doubt China plays an extremely important role in today's gold market.
I am still evaluating what kind of fundamental data I could easily convert
and build into my quantitative mechanical approach. Any ideas are welcome!
For now I think the chosen technical signal based on the parabolic sar indicator
will give us a very good idea at least for the price trend in china.
All in all the model has worked pretty well and avoided the sideways trap
during the last three weeks. It is now pointing towards the typical sell off
in May/June.
Gold Daily Chart
Fasten your seat belts... Gold looks tired and weak, still moving in a corrective
pattern. It needs this final washout for a new beginning. The falling 50-MA
($1,192) has been lost on Friday. It now could start sliding down along the
Bollinger-Band ($1,180) towards the next zone of support around $1,140. Here
a recovery lasting a couple of days would be no surprise. But as this would
be already the third test of this support, expect a fourth one soon to follow
which will crash through $1,140/$1,130...
I don't see a high probability for any recovery as sentiment and CoT are not
at extreme levels. Only the slow stochastic indicator is oversold. But this
same indicator on the silver chart is already bearish embedded after moving
3 days below 20. Should the bulls regain the 50-MA ($1,192) they might be able
to push prices even towards the 200-MA ($1,228).
Traders who are not yet short should wait for a better risk/reward setup or
could sell Gold short into any recovery towards $1,185 with a stop above $1,210
(please be aware that this is not an ideal set-up).
The most promising strategy although remains to simply wait until end of May
or mid of June for the typical pre-summer bottom in Gold and the Gold stocks.
As an investors I suggest you wait for another chance to accumulate physical
Gold below $1,150 until you hold 10-20% of your net-worth in physical Gold
and Silver as an insurance .
Long-term personal view
The return of the precious metals secular bull market is moving step by step
closer and should lead to the final parabolic phase (could start in summer
2015 or 2016 and last for 2-5 years or even longer).
Before this can start Gold will need a final sell off down to $1,050-$980.
Long-term price target DowJones/Gold-Ratio remains around 1:1.
Long-term price target Gold/Silver-Ratio remains around 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).
Long-term price target for Gold remains at US$5,000 to US$8,900 per ounce
within the next 5-8 years.
Fundamentally, as soon as the current bear market is over Gold should start
the final 3rd phase of this long-term secular 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 traders & investors who will be subject to blind greed and frenzied
panic.
