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You can consider this Gold Market
update to be gift wrapped. As I am unable to get presents to each and every reader
this year for logistical reasons, these Gold and Silver Market updates are
going to have to suffice, which is perfectly reasonable given how bullish
they are.
Little has changed since the last updates were
posted on the 5th December, but what change there has been has increased
immediate upside potential in both gold and silver substantially, as the
minor reaction in gold and sideways action in silver of recent weeks has
served to further unwind the earlier overbought condition.
The interpretation of the pattern in gold presented
in the last update, which was that it is marking out an upwardly skewed
bullish "running correction" remains
unchanged. All that has happened in the past few weeks is that it has reacted
back across the upsloping channel to arrive at
support near its rising 50-day moving average. As we can see on the 6-month
chart this reaction has resulted in a further easing of the medium-term
overbought condition as shown by the MACD indicator, which is now only
slightly overbought. The noticable convergence of
the short-term downtrend channel this month is an indication that gold will
soon break out of it upside to resume its advance and make new highs.
 
While the convergence of the downtrend channel reaction of recent weeks in
gold may not be very marked, the same can certainly not be said of the parallel
reaction in the PM stock indices such as the HUI index shown below. On the
6-month chart for the HUI index we can see a marked convergence of the
downtrend channel reaction that has served to largely unwind the overbought
condition and by bringing the price back down to support near its 50-day
moving average and at its uptrend channel support line has set gold up for
another impulse wave - an upleg that should easily
take it to clear new highs.
The Wedge reaction of recent weeks can be seen more clearly and easily on the
short-term 2-month chart shown below.
If gold and silver are set to rise in the near future, it follows that the dollar
is probably, although not necessarily, set to drop. Our 6-month chart for the
dollar shows that this is indeed the case, as the rally of recent days
appears to be spluttering beneath the falling 200-day moving average, and
with the dollar still overbought on most indicators there is certainly scope
for renewed decline. In the absence of more unrest in Europe the QE campaign
should work its magic and drive the dollar lower again, reducing the real
debt burden of the US - provided that it falls far enough and fast enough of
course.
Copper has now broken out to clear new highs as predicted in the last update and
is in position to accelerate away to the upside.
While a substantial intermediate-term rally is in
prospect we should be mindful of the storm clouds that are gathering on the
horizon. The recent sharp rise in rates is a "shot across the
bows". Rising interest rates are "the kiss of death" to the stockmarket, and if this trend continues it will crash
the commodity and stockmarkets. With regards to the
US stockmarkets "dumb money" is firmly in
control of the ball, with virtually all technical indicators such as insider
selling, Put/Call ratios, sentiment and VIX all flashing warnings. As you
should never underestimate the collective power of fools, even if it is
temporary, we have refrained from "crying wolf" about this for a
long time - months - but they are now pushing the envelope to such an extreme
that while the stockmarket may extend its deluded
Santa Claus rally into early next year, we wouldn't give it beyond about the
middle of January before a serious reversal occurs. So if we get the rally we
are expecting over the next 2 or 3 weeks in the PM sector we will be making a
careful note of the positions of the exits at the same time.
Clive Maund
Diploma Technical Analysis
support@clivemaund.com
www.clivemaund.com
Trading the precious metals and Energy
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