Best of the Week
Most Popular
1.North Korean Chinese Proxy vs US Military Empire Trending Towards Nuclear War! - Nadeem_Walayat
2.Researchers Find $10 Billion Hidden Treasure In A Dead Volcano - OilPrice_Com
3.Gold and Silver : The Battle for Control - Rambus_Chartology
4.Asda Sales Collapse and Profits Crash! UK Retailer Sector Crisis 2017 - Nadeem_Walayat
5.Deep State Conspiracy or Chaos - James_Quinn
6.The Stock Market Guns of August, Trade Set-Up & Removing your Rose Tinted Glasses - Plunger
7.Gold Stocks Coiled Spring - Zeal_LLC
8.Neil Howe: The Amazon-Walmart Rivalry Will Determine the Future of Retail - John_Mauldin
9.Crude Oil Price Precious Metals Link in August - Nadia_Simmons
10.Gold and Silver Precious Metals Nearing Breakout - Jordan_Roy_Byrne
Last 7 days
Global Financial Crisis 10 Years On: Gold Rises 100% from $650 to $1,300 - 23rd Aug 17
GBP/USD Extends Losses - 23rd Aug 17
Donald Trump Terrorist in Chief, “We Aren’t Nation-Building Again, We Are Killing Terrorists” - 23rd Aug 17
How Planned Fed Rate Increases Impact The National Debt & Deficits - 23rd Aug 17
The 3 Assets to Add to Your Stocks Portfolio in This Rate Tightening Cycle - 23rd Aug 17
Half Price UK Theme Parks Entry 2017 With Cheap Chocolate Packs - 23rd Aug 17
[GIFT] Market Control System! - 23rd Aug 17
4 Reasons European Stocks Will Make a Big Comeback This Year - 22nd Aug 17
3 Lesser-Known Charts Revealing a Massive Stock Market Disconnect - 22nd Aug 17
U.S. Treasury Secretary: "I Assume Fort Knox Gold Is Still There" - 22nd Aug 17
Is the Stock Market Setting itself up for a Spectacular Crash? - 22nd Aug 17
Power Elites Launches Civil War Against Trump - 22nd Aug 17
The Stock Market No Longer Cares About Trump - 21st Aug 17
The Coming Boom Of Productivity Will Get Our Economy Back On Track - 21st Aug 17
Buffett Sees Stock Market Crash Coming? His Cash Speaks Louder Than Words - 21st Aug 17
This Could Be The Biggest Gold Discovery In History - 21st Aug 17
Stock Market Correction in Full Swing - 21st Aug 17
Seeking Confirmations – US Stock Market - 21st Aug 17
The changing demographic of online gamblers - 21st Aug 17
Gold is a coiled spring… the breakout is here, fundamentals are in place, technicals are compelling - 20th Aug 17
A Midsummer Night's Dream: Buy Gold and Silver - 20th Aug 17
Gold Mining Stocks 2017 Fundamentals - 20th Aug 17
EIA Weekly Report and Crude Oil - 19th Aug 17
4 Insights for Adjusting Your Portfolio in a Rate-hike Environment - 19th Aug 17
Gold Direction Indicator - 19th Aug 17
Historical Inevitability and Gold and Silver Ownership - 19th Aug 17
You Are Being Lied To About “Low” Gold Demand - 19th Aug 17
This is Why Cocoa's Crash Was a Perfect Setup - 19th Aug 17
Gold, Silver Consolidate On Last Weeks Gains, Palladium Surges 36% YTD To 16 Year High - 19th Aug 17
North Korea Is Far From Being Irrational… It Has A Plan - 18th Aug 17
US Civil War - FUNCTIONAL ILLITERATES TRYING TO ERASE HISTORY - 18th Aug 17
Bitcoin Hits New All-Time High Over $4,400 As It Catches Paypal In Total Market Cap - 17th Aug 17
3 Psychological Ingredients behind Great Web Content - 17th Aug 17
The War on Cash - Rogoff, Orwell and Kafka - 17th Aug 17
The Stock Market Guns of August, Trade Set-Up & Removing your Rose Tinted Glasses - 16th Aug 17
Stocks, Bonds, Interest Rates, and Serbia, Camp Kotok 2017 - 16th Aug 17
U.S. Stock Market: Sunrise ... Sunset - 16th Aug 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

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

© 2005-2017 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

Catching a Falling Financial Knife