Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19
Gold Price Gann Angle Update - 10th July 19
Crude Oil Prices and the 2019 Hurricane Season - 10th July 19
Can Gold Recover from Friday’s Strong Payrolls Hit? - 10th July 19
Netflix’s Worst Nightmare Has Come True - 10th July 19
LIMITLESS - Improving Cognitive Function and Fighting Brain Ageing Right Now! - 10th July 19
US Dollar Strength Will Drive Markets Higher - 10th July 19
Government-Pumped Student Loan Bubble Sets Up Next Financial Crisis - 10th July 19
Stock Market SPX 3000 Dream is Pushed Away: Pullback of 5-10% is Coming - 10th July 19
July 2019 GBPUSD Market Update and Outlook - 10th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Gold Crumbles in the Face of U.S. Dollar Strength

Commodities / Gold and Silver 2010 Feb 07, 2010 - 06:15 AM GMT

By: Clive_Maund

Commodities

Best Financial Markets Analysis ArticleGold performed as predicted in the last update, rallying up to the top of its Descending Triangle before reversing and crashing support at the bottom of the Triangle on Thursday. Many traders were startled by the magnitude of the Thursday's $45 drop. It was a bearish development for reasons we will come to shortly, but paradoxically it was immediately followed by a "Reversal Day" on Friday, which is a sign that the steep drop has exhausted itself - for now. Bulls, who were poleaxed by Thursday's plunge, are already dancing on the rooftops proclaiming that the "correction" is over as a result of the recovery late on Friday. So what are we to make of this seemingly contradictory market action? Let's see what the chart is saying.


On the 2-year plus chart for gold we can see the rally up to the top of the Triangle early last week and how it was quickly followed by reversal and a plunge which crashed the support at the bottom of the Triangle. This plunge is given added significance due to the fact that it resulted in gold breaking down from the major channel shown - this is why the drop was so large. We have not employed this channel before but it is thought to have great importance as it relates closely to a similar parallel channel for silver drawn from the same point of origin in time on arithmetic scale. As we can see, gold's breakdown from this channel is thus far not by a sufficient margin to be convincing, but the same cannot be said of silver (see Silver Market update). On the silver chart we have a clear breakdown that is thought to mark the start of a phase of severe decline, which implies that the breakdown on the gold chart, although still marginal, is genuine.

So, gold and silver break down from uptrends, but then the next day bullish hammers (in the case of gold it was more a "dragonfly doji") appear on their charts indicating reversal. What can this mean? The reasons for the late rebound are not hard to find. Gold has dropped back steeply towards a zone of strong support just above the giant 20-month trading range and near its rising 200-day moving average, and is now oversold, factors which alone would normally move us to buy, as it would be unlikely to break down through this support without at least a token rally - and Friday's rebound is thought to signal the start of it. Token is all it is likely to be, however, because the macro environment is fast deteriorating. As already mentioned the silver chart looks terrible.

Copper has broken down to enter a bearmarket that promises to be brutal given its high stock levels, although its COT chart improved dramatically last week so a relief rally is very possible.The stockmarket, whose big bearmarket rally is believed to have run its course and whose technicals have been deteriorating for weeks or even months, is rolling over into a decline that looks likely to be severe - probably on a par with 2008. The gold stock indices have broken down decisively from their year-long uptrends, although they are due a brief relief rally, and of course the dollar is in a vigorous uptrend, even if it does react back short-term.

If, after a brief relief rally, gold does go on to break down below the strong support and drop away steeply, does it mean that its long bullmarket is over as another deflationary downwave strikes? Probably not - because politicians will panic like they did last time and open the floodgates to an even bigger tsunami of liquidity creation and bailouts, which next time lead can be expected to lead to massive inflation/hyperinflation as the situation spirals out of control. Once they open the spigots again gold and silver will truly soar into a spectacular parabolic blowoff, but in the meantime it looks like we are going to have to deal with Deflationary Downwave Mk 2, which might also be named "Son of Crash 2008".

In conclusion, a short-lived rally looks likely in gold and silver lasting perhaps a week or two, several weeks at most, after which they are expected to turn and plunge again. This rally is likely to be weak and unable to surpass the $1100 level. Should gold succeed in breaking above the top line of the Triangle, now at about $1110, it would turn the picture more bullish and would be expected to ignite a more powerful rally.

By Clive Maund
CliveMaund.com

For billing & subscription questions: subscriptions@clivemaund.com

© 2010 Clive Maund - The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

Clive Maund Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules