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Gold continues to prepare to break out of its giant Head-and-Shoulders
bottom pattern. As we can see on its 8-year chart below, this base pattern
has been developing for getting on for 5-years now, so it has major
implications. Upside volume has been building for a long time, driving volume
indicators higher, a sign that a breakout and new bullmarket is simply a
matter of time, and not much at that now.
 
There has been much grumbling and muttering within the
gold community about how “The Cartel” and the Comex etc are holding the gold
price in restraint by means of naked short selling, and hitting the market
with supply when trading is thin during public holidays and overnight and so
on, but the fact of the matter is that the reason why the Precious Metals
sector has taken a back seat for years now is that there have been hotter
games in town, like Biotech, Bitcoin, Cannabis, the FANGS, Tech generally etc
and endless quantities of cheap money to bid them up into the stratosphere.
So that is where the action has been. However, to everything its season and
all that is coming to an end now, and the recent plunge in the stockmarket
was a “shot across the bows” to all who would heed it, indicating that a new
bearmarket is starting, but don’t go telling that to the buy the dip crowd.
Gold does well and has its best bullmarkets when stocks generally are in a
bearmarket, so don’t get fooled by PM stocks falling with the stockmarket at
this time – that won’t last. Thus it is worth observing that gold has
outperformed stocks during the period since the stockmarket plunge started –
it is back where it was before the plunge, which is more than can be said for
stocks. Before looking at gold’s shorter term 6-month chart, it is worth
taking a quick detour to see how it is getting on against some other
currencies. Over the past year or so the dollar has dropped quite hard, with
the prime beneficiary of this drop being the euro, which has risen
substantially. Therefore we should not be surprised to see that gold has
dropped against the euro during this same period. What is interesting to
observe on the 8-year chart for gold in euros, however, is that it has
arrived at the lower boundary of a large uptrend that has turned the price
back up on 2 occasions already. This suggests that gold is going to rise even
in euros, and since the dollar is expected to continue to drop, regardless of
any brief countertrend rally, it means that it should rise faster still
against the dollar, which of course is what we would expect to see once it
breaks out of its Head-and-Shoulders bottom shown on its normal dollar chart.
Before leaving this chart observe how gold is not all that far off making new
highs against the yen, shown at the bottom of the chart.
Turning now to the latest COT chart, the Large Specs high
long positions are a factor that prompted us to look for a reaction in gold
in the last update several weeks back. Readings have eased significantly
since, although they are in middling ground and still far from levels that
could be described as emphatically bullish. Such is not the case with silver,
however – silver’s latest COT is flat out bullish, so it could be that silver
rallies and gold comes along for the ride, and gold’s COTs do show that there
is sufficient leeway for this to happen.
Click on chart to popup a larger clearer version. The
latest 6-month chart shows that gold reacted just as we expected it to in the
last update, back close to its rising 50-day moving average, and the good
news is that, as we can see, it has already gotten back to where it was
before the stockmarket plunge, an early sign of the outperformance to come.
Right now, with the dollar having turned up from support again on Friday and
looking set to stage a modest rally, gold looks set to react back again from
the resistance shown towards the support once more, which should throw up
another opportunity to accumulate the better PM stocks, and they have already
started to drop back again.
Now we’ll look at several charts for PM stocks, as
represented by the proxy Market Vectors Gold Miners ETF, GDX. Starting with
the 8-year chart we see that it has marked out a giant Head-and-Shoulders
bottom pattern that parallels the one in gold itself, but there is one big
difference – GDX is much closer to the Right Shoulder low of its H&S
bottom than gold itself is, so you could say that gold stocks are better
value here, as even a rise by GDX just to the neckline of its H&S bottom
would result in big gains in many stocks.
The 2-year chart for GDX puts the recent drop in sympathy
with the broad market into perspective. On this chart it looks like “a storm
in a teacup” – it didn’t breach the strong support shown and downside
momentum, as shown by the MACD, was not all that great.
The 6-month chart for GDX shows that investors were
freaked out by the plunge in the broad stockmarket and dumped PM stocks over
the side too. This is normal in the early panic stages of broad market
bearmarkets, but eases as the bearmarket becomes more established and the PM
sector is increasingly seen as a safe haven. As with mainstream stocks, GDX
recouped about 50% of its losses during the plunge, which we correctly
anticipated in THE
MAGNIFICENT DRAGONFLY DOJI REVERSAL CANDLE IN GDX , and is now turning
lower again due to the dollar starting higher.
Now we move on to consider the dollar, as ever crucial in
our calculations. As pointed out in the last update, the dollar has broken
down from a giant Broadening Top, an ominous development, as we can see on
the latest 8-year chart for the dollar index below, and now looks set to drop
to a minimum target in the 80 area, notwithstanding any short-term rallies to
near the breakdown point at the lower boundary of the top pattern.
Finally on the 3-month chart for the dollar index we can
see how it rallied back to the lower boundary of the Broadening Top, as
predicted in the last update, although it got a little higher than we
expected and got there a little later, and then backed off again, also as
predicted. Now, with a bullish candle forming on Friday, it looks like it is
going to have another go at it, although this time the rally is expected to
fail at a lower level. This would correspond with the minor reaction now
expected across the PM sector that will throw up another buying opportunity.
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