Best of the Week
Most Popular
1.War on Cash, Bank of England Planning Hyper QE, Scrapping Cash for Digital Currency - Nadeem_Walayat
2.Stock Market End Run Smash Crash Looks Imminent... - Clive_Maund
3.Europe Refugee Crisis, UK to Repatriate 120,000 Hungarian Economic Migrants Back to Hungary - Nadeem_Walayat
4.The Great Deflation Will Destroy All Bubbles – These Too - Harry_Dent
5.Deflation Signals Abound for U.S. Dollar, Forex Markets and Commodities - Rambus_Chartology
6.U.S. Housing Market Two Outs in The Bottom of The Ninth - James_Quinn
7.Poland, Czech, Slovakia and Hungary Refugee Hypocrisy After Flooding UK with 4 Million Economic Migrants - Nadeem_Walayat
8.The Two Real Reasons Crude Oil Prices Are Currently Slipping - Dr. Kent Moors
9.R.I.P. Interest Rates - Andrew Snyder
10.Steps from a Deep October Stock Market Selloff - Bob_Loukas
Last 5 days
A Key Oil Price Trend That Everyone Is Missing - 6th Oct 15
Stock Market Turn Appears to Have Been Made - 6th Oct 15
Designing a Dividend Growth Portfolio for a Specific Retirement Yield Objective - 6th Oct 15
Peter Schiff Predicts Gold Price Breakout - Video - 6th Oct 15
Theresa May Declares War on Immigration - Conference Speech Full Transcript - 6th Oct 15
Is Russia Plotting To Bring Down OPEC? - 6th Oct 15
Target Date Funds As Aid In Retirement Investment Portfolio Design - 6th Oct 15
Stocks Bear Market Apocalypse Imminent Crash Gets Nuked Again - 6th Oct 15
Redesigning Internet and Facebook to Explore Their Full Potentialities... - 5th Oct 15
Nightshades Curb Your Enthusiasm - 5th Oct 15
U.S. Recession Watch, High-Yield – Rising Defaults - 5th Oct 15
The Social Challenge to Find Humanity in Capitalism - 5th Oct 15
Fed Interest Rate Hike: "I don't care. It doesn't really make much of a difference" - 5th Oct 15
Gold Rose 2.2%, Silver Surged 5.4% After Poor Jobs Number On Friday - 5th Oct 15
Gold, Silver Precious Metals: a Critical Week Ahead - 5th Oct 15
Stock Market Correction Still in Force - 5th Oct 15
Gold Price Change in Character - 5th Oct 15
Putin’s Blitz Leaves Washington Rankled and Confused - 4th Oct 15
More Selling for Stock Market, Gold? - 4th Oct 15
Gold And Silver – A Reality Check - 3rd Oct 15
Stock Market Primary IV Still, or Primary V Underway? - 3rd Oct 15
The Oil Industry’s Day of Reckoning - 3rd Oct 15
U.S. Interest Rate Hikes Keep On Slippin' Into the Future; Treasury Yields Sink Again - 3rd Oct 15
China's Stock Market Crashing; Time for Panic or Restraint - 3rd Oct 15
SPX Stocks Bulls Struggle to Regain the Upper hand... - 2nd Oct 15
The Two Faces of Stock Market Volatility - 2nd Oct 15
Money Supply and the Fed’s Serious Inflation Risks - 2nd Oct 15
Stock Market How Bad Can This Get, And How Fast? - 2nd Oct 15
A Worrying Set Of Recession Signals - 2nd Oct 15
Negative Jobs Report Sents SPX, TNX Lower - 2nd Oct 15
Don't be Fooled by the Recent Equity market Rallies. Its a Bear Market, Stupid! - 2nd Oct 15
US Bond Market - How to Fix This - 2nd Oct 15
Survival Secrets from Colorado Resource Investing Front Lines - 2nd Oct 15
What Two Risks From Rising Interest-Rates Could Each Trigger A New Global Crisis? - 1st Oct 15
Stock Market S&P 500 Volatility-Based Price Probability Range - 1st Oct 15
Dow Stock Market About To Crash Like October 1929? Get Your Physical Silver - 1st Oct 15
Stock Market Negative Expectations Once Again - Will It Break Down? - 1st Oct 15
Advice for Biotech Investors: 'Hold Your Powder' 'til Winter - 1st Oct 15
Best Short-Term Commodity Market Opportunities - Video - 1st Oct 15

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

Gold Prepares for Breakout as Stock Market Trends Towards a Crash

Stock-Markets / Financial Markets 2012 Nov 12, 2012 - 05:44 AM GMT

By: Clive_Maund


Diamond Rated - Best Financial Markets Analysis ArticleWe exited our short positions in gold for a modest but useful profit when it broke out of its downtrend towards the end of October. It then broke sharply lower on heavy turnover in a move that looks capitulative, but afterwards turned and rose quite sharply over the past week. So the question now is “has it bottomed?” Although the answer to this question is “Yes, it looks like it has”, it also looks like it may back and fill for a little while to complete a base pattern before a sustained advance can get underway. COTs, particularly for silver, continue to give grounds for caution and warn that the current turn may be the B-wave trap of a A-B-C correction. We are aware of this danger and place stops accordingly to protect us from it.

We can see the latest action on the 6-month chart for gold below. Gold didn’t quite make it as far down as our earlier defined downside target at $1660 in the vicinity of its 200-day moving average, but reversed at a good point for it to do so, just above this key average. Action last week certainly looks positive, with it rising day after day on good volume, but by Friday it was looking a bit tired with a “doji” forming just beneath its 50-day moving average. This implies that it may take a breather here and back off a little to form the Right Shoulder of a small potential Head-and-Shoulders bottom. This would be a “nice” thing for it do technically, as it would set it up for a strong rise, and it will be nicer still if it does just that and we buy on such a short-term dip. We therefore look to buy or increase positions on a short-term dip towards $1700, say in the $1705 area, with a stop below $1695 to protect us from the C-wave risk mentioned above, or alternatively on a closing break above $1742 if the advance continues, with a closing stop at about $1718, which reduces the risk of a whipsaw – unless that is the dastardly cartel are reading this.

On the 3-year chart for gold we can see that overall it remains stuck in a large trading range bounded by the nearest support and resistance shown, although the way it has reversed near its 200-day moving average looks positive. This chart makes clear the importance of the resistance approaching the $1800 level, as this level has turned the price back 3 times already over the past year. What this implies is that if it can succeed in breaking above this level it should then act as a foundation for a breakout to new highs leading to a major new uptrend.

The latest COT chart for gold shows Commercial short and Large Spec long positions continuing to ease from the extreme levels of a few weeks back which all but prohibited further advance. Positions are not yet at levels which can be described as bullish, but at least there is now room for renewed advance. Other than this observation, the latest gold COTs are not much use in predicting the immediate outlook, although the silver COTs continue to give grounds for caution.

Precious Metals stocks are still in a clearly defined downtrend that began in mid-September, as we can see on the 6-month chart for the HUI index below, and would be buyers should generally wait until we see a clear breakout from this downtrend before moving into the sector, and then quite close stops should be set to guard against the risk that the breakout is false move.

Of crucial importance for gold and silver, and just about everything else, is the outlook for the dollar. It has been picking up in recent weeks, as we had expected, but now it is showing signs that its recovery may be petering out at a somewhat lower level than we had earlier expected. We had earlier figured that the dollar index would rally to a target at about 81.70, close to its high of last January, to complete the Right Shoulder of a Head-and-Shoulders top as shown on its 1-year chart below, and it still could, but the action in gold in recent days suggests that it may be about to top out here, just beneath the zone of resistance shown.

If the dollar rolls over and drops here, in addition to giving the Precious Metals a boost it is likely to trigger a sharp rebound in the broad stockmarket, which is now quite deeply oversold as we can see on the 6-month chart for the S&P500 index below. This was why we hastily took profits in our broad market bear ETFs on Friday.

Although such a rebound may now occur, the longer-term charts for the broad US stockmarket look pretty awful, which is hardly surprising considering the prospect for shriveling corporate profits and the looming Fiscal Cliff, so it the broad market rallies we will probably go back into our shorts.

By Clive Maund

For billing & subscription questions:

© 2012 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

© 2005-2015 - 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

Biggest Debt Bomb in History