Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
What to Expect at a Critical Stock Market Point: End of a Wave 2 Rally - 26th Apr 18
A New Lithium War Is About To Begin, Modern Gold Rush! - 26th Apr 18
Silver, silver, and silver! There’s More Than Silver, People! - 26th Apr 18
How to be Financially Prepared When Purchasing Your First Home - 26th Apr 18
Is a Stock Market Crash Imminent or Does this Stock Market Bull Still Have Legs - 25th Apr 18
Gold Price Focusing on May Cycle Bottom - 25th Apr 18
Cash “Vanishes” From Bank Accounts In Ireland - 25th Apr 18
Is the Malaysian Economy a Potemkin Village - 25th Apr 18
Land Rover Discovery Sport Rattling / Knocking Sounds From Car Pillars - 25th Apr 18
China Takes the Long View on Gold-Silver... and So Should You - 25th Apr 18
Russia Buys 300,000 Ounces Of Gold In March – Nears 2,000 Tons In Gold Reserves - 24th Apr 18
Stock Market Study Shows Why You Shouldn’t “Sell in May and Go Away” - 24th Apr 18
CRYPTOCURRENCY MASTERCLASS #CRY90 - 24th Apr 18
UK Gambling Statistics - What the Numbers Say - 24th Apr 18
Chaos Capitalists Short Countries - How Chanos Got China Wrong - 24th Apr
Artificial Intelligence Defines the Political News Narrative - 24th Apr 18
Stock Market "Oops, They Did It Again" - 24th Apr 18
Fox in the Henhouse: Why Interest Rates Are Rising - 23rd Apr 18
Stocks and Bonds, This is Not a Market - 23rd Apr 18
Happy Anniversary Silver Investors! - 23rd Apr 18
The Hottest Commodity Play In 2018 - 23rd Apr 18
Stock Market Correction Turns Consolidation - 23rd Apr 18
Silver Squeeze, Gold Fails & GDX Breadth - 23rd Apr 18
US Economy Is Cooked, the Growth Cycle has Peaked - 23rd Apr 18
Inflation, With a Shelf Life - 23rd Apr 18 - Gary_Tanashian
Stock Market Predictive Modeling Is Calling For A Continued Rally - 22nd Apr 18
SWEATCOIN - Get PAID to WALK! Incentive to Burn Fat and Lose Weight - Review - 22nd Apr 18
Sheffield Local Elections 2018 Forecast Results - 22nd Apr 18
How Long Does it take for a 10%+ Stock Market Correction to Make New Highs - 21st Apr 18
Sheffield Ruling Labour Party Could Lose 10 Council Seats at May Local Elections - 21st Apr 18
Crude Oil Price Trend Forecast - Saudi Arabia $80 ARAMCO Stock IPO Target - 21st Apr 18
Gold Price Nearing Bull Market Breakout, Stocks to Follow - 20th Apr 18
What’s Bitcoin Really Worth? - 20th Apr 18
Stock Market May "Let Go" - 20th Apr 18
Overwhelming Evidence Against Near Stock Market Grand Supercycle Top - 20th Apr 18
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

Gold Looks Messy Going into 2013, Dollar and Stocks Could Breakdown

Commodities / Gold and Silver 2013 Dec 24, 2012 - 06:15 AM GMT

By: Clive_Maund

Commodities

After gold's losses of the past couple of weeks there is increasing talk about its bullmarket being finally over. In this update we will use long-term charts to determine whether these claims have any substance.

On its 12-year chart, which goes back to the start of the bullmarket, we can see that the top boundary of the uptrend from 2006 is defined by the line drawn across 3 important peaks, and it is from this line that the parallel supporting trendline beneath is derived. While there is no law stating that the lower trendline has to be parallel, it is nevertheless likely, and it is regarded as no coincidence that the strong support at recent lows, which needs to hold, and this lower trendline are more or less coincident at this time - if the current reaction continues this is where it should stop and reverse, although as we will see later on the 6-month chart it may not drop back any further than where it is now.


Gold 12-Year Chart

Having gotten a perspective on the entire bullmarket, we will now look at the action from the 2006 peak in more detail on a 7-year chart. On this chart we can see more clearly where gold will arrive at a 'buy spot' if the current reaction continues, in the green oval. Since the August 2011 peak, gold has mostly been trading in a horizontal box or rectangular trading range bounded by the clear lines of support and resistance shown. On a further dip into this support, which will bring it close to the major supporting trendline, gold will be a buy, and as this important support above $1500 is so clearly defined, the point to set stops will be a little below $1500. This mechanical approach affords a highly favorable risk/reward ratio, as positions would be closed out for a minor loss if the support fails, while upside potential from this entry point is obviously very considerable.

Gold 7-Year Chart

A lot of traders were upset last week when gold dropped below its early November lows, in the process dropping below its 200-day moving average, and grumbling about the dastardly cartel and their 'dirty tricks department' bubbled up again. On the 6-month chart we can see recent action in detail, and it might not be anywhere near as bad as it looks at first sight. On the contrary we could be at a buy spot right now - for what we might just have seen is the completing C-wave of a 3-wave A-B-C correction to the strong upleg in August and September, which still looks like an impulse wave (advance in the direction of the primary trend). The price has now arrived at the bottom of the parallel channel shown and at a zone of significant support in an oversold condition. Also, last week's selling looks rather panicky and capitulative, the sort of thing you associate with weak hands.

Gold 6-Month Chart

The latest Hulbert Gold Sentiment, courtesy of www.sentimentrader.com shows that the sentiment pendulum has swung from being very bullish a few months ago, and thus a sign of a top, to getting bearish again, which increases the chances of a reversal to the upside soon.

Hulbert Gold Sentiment

Gold's COT charts did call the retreat of recent weeks, with high Commercial short and Large Spec long positions having built up ahead of it, as the latest COT chart below shows. The chart is now less useful, as readings have moderated into middle ground, and thus don't give much of an indication one way or the other.

Gold COT

What about the dollar? - a dollar plunge would be 'just what the doctor ordered' for gold's convalescence and swift return to ruddy cheeked health would it not?

The dollar index chart looks dire. On its 18-month chart we can see that a large Head-and-Shoulders top appears to be completing. While these patterns can sometimes abort, it indicates a high probability that the dollar will break lower soon, and if it does it can be expected to drop quite rapidly to the next important support level in the 73.50 - 74 area. Clearly such a drop is likely to drive a substantial rally in gold and silver. The fact that gold and the dollar dropped together over the past week or so is regarded as a temporary anomaly.

US Dollar Index 18-Month Chart

At the same time, the broad stockmarket look like it about to roll over and head south. On the 15-year chart for the S&P500 index we can see how its big bearmarket rally has been steadily decelerating as it has approached the massive resistance at its 2000 and 2007 highs, with the uptrend approximating to a bearish Rising Wedge, but more accurately defined by the large bearish 'Distribution Dome' shown on the chart. While the pattern could abort, with a breakout to new highs - possible if the dollar craters - by itself this chart points to a potentially severe decline. One horrifying possibility is that the dollar and US stockmarket drop in tandem as the US economy, finally overcome by its massive debt burden with the eventual threat of runaway interest rate hikes, plunges into the abyss.

S&P500 15-Minute Chart

If the Head-and-Shoulders top in the US dollar were to abort, and it rallies as a result of a 'dash to cash' as in 2008, then it is easy to see how the US stockmarkets could then plunge, which they look set up to do. In this situation what would happen to Precious Metals stocks, which have recently looked really lame?

Our 5-year chart for the HUI index shows that the sector looks vulnerable to a brutal decline if the broad stockmarket plunges, as a large potential Head-and-Shoulders top is completing in this index. In this situation quality junior mining stocks which have typically lost 80 - 90% of their value over the past couple of years, might only lose another 50 - 75% of their current value, so that a stock which has dropped from say C$2.00 to C$0.20 over the past 2 years, might only drop to say C$0.07, where needless to say, it will probably be a great bargain.

HUI Index 5-Year Chart

In conclusion it is a complex and messy picture, but at least we have the clear parameters that are set out in this update. Gold could reverse and take off higher from here, and is viewed as a buy on any further retreat back into the support above $1500. Failure of the key $1500 level would be a bearish development that would call for the closing out of positions or at least protecting with hedges. The dollar looks set to break down, but so does the stockmarket, which is an extraordinary situation as normally when the dollar drops, stocks rally to compensate.

To finish on a supremely positive note, at least we survived the Mayan prophecy for the world to end on 21st December. After that 2013 should be a cakewalk!...

Chjichen Itza, Yucatan, Mexico

Photo by Maund

By Clive Maund
CliveMaund.com

For billing & subscription questions: subscriptions@clivemaund.com

© 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

© 2005-2018 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