Best of the Week
Most Popular
1.Stock Market Crash and Recession Indicator Warning: Extreme Danger Ahead - Harry_Dent
2. Is This How World War III Begins, In Almost Complete Silence? - Jeff_Berwick
3.Trump Wins 2nd Presidential Debate, Betfair Betting Markets Odds Bounce - Nadeem_Walayat
4.Why Krugman, Roubini, Rogoff And Buffett Dislike Gold - GoldCore
5.End of SPX Stock Market Correction Nears - Tony_Caldaro
6.Get Ready for the Future - Exponential Machine Intelligence Mega-trend towards Singularity - Nadeem_Walayat
7.US Housing Market Bubble II – It’s Happening Again! - Andy_Sutton
8.FTSE BrExit Stock Market Panic Crash Resolves towards New All Time Highs - Nadeem_Walayat
9.Can Trump Still Win Despite Opinion Polls, Bookmakers and Pundits all Saying Hillary has Won? - Nadeem_Walayat
10.Gold’s, Miners’ Stops Run - Zeal_LLC
Last 7 days
The Stock Market is an Accident Waiting to Happen - 20th Oct 16
It's Rally Time for Gold and Silver Equities - 20th Oct 16
Cashless Society – Risks Posed By The War On Cash - 20th Oct 16
China's Insanely Leveraged Housing Market Will Enter Its Secular Bull Market In 2017 - 20th Oct 16
Donald Trump Bounces Going into 3rd and Final US Presidential Election Debate - 20th Oct 16
Attention Please: Phase Two of the Gold and Silver Train Now leaving the Station. All Aboard? - 19th Oct 16
How to Successfully Trade a Stock Market Crash - Black Monday October 19th 1987 - 19th Oct 16
Tesla, Apple and Uber Push Lithium Prices Even Higher - 18th Oct 16
Silver, Debt, and Deficits – From an Election Year Perspective - 18th Oct 16
UK Property Market: Slow Growth Does Not Equate To Decline - 18th Oct 16
Trump Election Victory is in Your Power - 18th Oct 16
Stock Market More to Come! - 18th Oct 16
This Past Week in Gold and Silver - 17th Oct 16
A Falling Stock Market Cannot Be Allowed - Financial Repression Is Now “In-Play”! - 17th Oct 16
Commodities, Forex and Stock Market Trend Forecasts - 17th Oct 16
Stock Market Crash..or No Crash? - 17th Oct 16
A perspective on risk rally – Risks abound but Stock Market is Confident - 17th Oct 16
Bank of England Blames Brexit for Sterling Drop Inflation, Masks QE Money Printing Cause - 17th Oct 16
From Piety to Pride to Pity, America's Racial Divide - 17th Oct 16
Is Obama Juicing US Government Spending To Get Hillary Clinton Elected? - 16th Oct 16
Seek Your Independence: Anything Else Will Destroy You - 16th Oct 16
SNL - US Presidential Debates, 1st, 2nd, VP - Like You've Never Seen them Before! - 16th Oct 16
End of Economic Growth Sparks Wide Discontent - 16th Oct 16
Donald Trump on Life Support, May Abandon Election Campaign and War on Republican Party - 15th Oct 16
The Gold Manipulators Not Only Will Be Punished, They Have Been Punished - 15th Oct 16
Black Votes Matter - Is the US on the Verge of Mass Race Riots? - 15th Oct 16
Gold Stocks Screaming Buy - 14th Oct 16
Brace Yourself for the Quadrillion-Dollar Reckoning - 14th Oct 16
The Next Recession Will Blow Out the Budget - 14th Oct 16
John Mauldin: My Infrastructure Plan to Save the US Economy - 14th Oct 16
World War III On The Brink: War Will Continue Until It Triggers Economic Collapse - 14th Oct 16
US T-Bill Rejection At Ports In Progress - 14th Oct 16
These 2 Debt Instruments Pose Peril to Millions of Investors - 14th Oct 16
China’s Rocketing Housing Market Real Estate Bubble - 14th Oct 16
DIY Winter Home Maintenance Money Saving 22 Point Checklist to Get Ready for Winter/Fall - 14th Oct 16
US Stock Market, Big Picture View - 13th Oct 16
Stock Buybacks Main Force Driving Bull Market; Rewards Investors and Starves Innovation - 13th Oct 16
SPX Gapping Down... - 13th Oct 16
Syria - Obama Stepped Back From Brink, Will Hillary? - 13th Oct 16
The Structure and Future of Gold in the Investment and Monetary World - 13th Oct 16
Can Trump Still Win Despite Opinion Polls, Bookmakers and Pundits all Saying Hillary has Won? - 12th Oct 16
Gold and Crude Oil - General Stock Market Links - 12th Oct 16
Samsung's Galaxy Battery Just The Tip Of The Iceberg - 12th Oct 16
Hillary: Deceit, Debt, Delusions (Part Two) - 12th Oct 16
Gold and Silver Metals Show Strength Relative to the USD Index - 12th Oct 16
Announcing Trader Education Week -- a Free Event to Help You Learn to Spot Trading Opportunities - 12th Oct 16
Confirmed Stock Market Sell Signals - 11th Oct 16
Hillary Deceit, Debt, Delusions - 11th Oct 16
Trump Support Crashes to New Low of 6.4 on Betfair Odds Betting Market - 11th Oct 16
The World Is Turning Dangerously Insular - 11th Oct 16
An American Tragedy: Trump Won Big - 11th Oct 16

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

LEARN to Trade

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

© 2005-2016 - 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

Catching a Falling Financial Knife