Best of the Week
Most Popular
1. Five Charts That Show We Are on the Brink of an Unthinkable Financial Crisis- John_Mauldin
2.Bitcoin Parabolic Mania - Zeal_LLC
3.Bitcoin Doesn’t Exist – 2 - Raul_I_Meijer
4.Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - Nadeem_Walayat
5.Labour Sheffield City Council Election Panic Could Prompt Suspension of Tree Felling's Private Security - N_Walayat
6.War on Gold Intensifies: It Betrays the Elitists’ Panic and Augurs Their Coming Defeat Part2 - Stewart_Dougherty
7.How High Will Gold Go? - Harry_Dent
8.Bitcoin Doesn’t Exist – Forks and Mad Max - Raul_I_Meijer
9.UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - GoldCore
10.New EU Rules For Cross-Border Cash, Gold Bullion Movements - GoldCore
Last 7 days
Jim Rickards: Next Financial Panic Will Be the Biggest of All, with Only One Place to Turn… - 20th Jan 18
Macro Trend Changes for Gold in 2018 and Beyond - Empire Club of Canada - 20th Jan 18
Top 5 Trader Information Sources for Timely, Successful Investing - 20th Jan 18
Bond Market Bear Creating Gold Bull Market - 19th Jan 18
Gold Stocks GDX $25 Breakout on Earnings - 19th Jan 18
SPX is Higher But No Breakout - 19th Jan 18
Game Changer for Bitcoin - 19th Jan 18
Upside Risk for Gold in 2018 - 19th Jan 18
Money Minute - A 60-second snapshot of the UK Economy - 19th Jan 18
Discovery Sport Real MPG Fuel Economy Vs Land Rover 53.3 MPG Sales Pitch - 19th Jan 18
For Americans Buying Gold and Silver: Still a Big U.S. Pricing Advantage - 19th Jan 18
5 Maps And Charts That Predict Geopolitical Trends In 2018 - 19th Jan 18
North Korean Quagmire: Part 2. Bombing, Nuclear Threats, and Resolution - 19th Jan 18
Complete Guide On Forex Trading Market - 19th Jan 18
Bitcoin Crash Sees Flight To Physical Gold Coins and Bars - 18th Jan 18
The Interest Rates Are What Matter In This Market - 18th Jan 18
Crude Oil Sweat, Blood and Tears - 18th Jan 18
Land Rover Discovery Sport - Week 3 HSE Black Test Review - 18th Jan 18
The North Korea Quagmire: Part 1, A Contest of Colonialism and Communism - 18th Jan 18
Understand Currency Trade and Make Plenty of Money - 18th Jan 18
Bitcoin Price Crash Below $10,000. What's Next? We have answers… - 18th Jan 18
How to Trade Gold During Second Half of January, Daily Cycle Prediction - 18th Jan 18
More U.S. States Are Knocking Down Gold & Silver Barriers - 18th Jan 18
5 Economic Predictions for 2018 - 18th Jan 18
Land Rover Discovery Sport - What You Need to Know Before Buying - Owning Week 2 - 17th Jan 18
Bitcoin and Stock Prices, Both Symptoms of Speculative Extremes! - 17th Jan 18
So That’s What Stock Market Volatility Looks Like - 17th Jan 18
Tips On Choosing the Right Forex Dealer - 17th Jan 18
Crude Oil is Starting 2018 Strong but there's Undeniable Risk to the Downside - 16th Jan 18
SPX, NDX, INDU and RUT Stock Indices all at Resistance Levels - 16th Jan 18
Silver Prices To Surge – JP Morgan Has Acquired A “Massive Quantity of Physical Silver” - 16th Jan 18
Carillion Bankruptcy and the PFI Sector Spiraling Costs Crisis, Amey, G4S, Balfour Beatty, Serco.... - 16th Jan 18
Artificial Intelligence - Extermination of Humanity - 16th Jan 18
Carillion Goes Bust, as Government Refuses to Bailout PFI Contractors Debt and Pensions Liabilities - 15th Jan 18
What Really Happens in Iran?  - 15th Jan 18
Stock Market Near an Intermediate Top? - 15th Jan 18
The Key Economic Indicator You Should Watch in 2018 - 15th Jan 18
London Property Market Crash Looms As Prices Drop To 2 1/2 Year Low - 15th Jan 18
Some Fascinating Stock Market Fibonacci Relationships... - 15th Jan 18
How to Know If This Stock Market Rally Will Continue for Two More Months? - 14th Jan 18
Everything SMIGGLE from Pencil Cases to Water Bottles, Pens and Springs! - 14th Jan 18
Land Rover Discovery Sport Very Bad MPG Fuel Economy! Real Owner's Review - 14th Jan 18
Gold Miners’ Status Updated - 13th Jan 18
Gold And Silver – Review of Annual, Qrtly, Monthly, Weekly Charts. Reality v Sentiment - 13th Jan 18
Gold GLD ETF Update.. Bear Market Reversal Watch - 13th Jan 18
Stock Market Leadership In 2018 To Come From Oil & Gas - 13th Jan 18
Stock Market Primed for a Reversal - 13th Jan 18
Live Trading Webinar: Discover 3 High-Confidence Trade Set-Ups - 13th Jan 18
Optimum Entry Point for Gold and Silver Stocks - 12th Jan 18
Stock Selloffs Great for Gold - 12th Jan 18
These 3 Facts Show Gold Is Set to Surge in 2018 - 12th Jan 18
How China is Locking Up Critical Resources in the US’s Own Backyard - 12th Jan 18
Stock futures are struggling. May reverse Today - 12th Jan 18
Three Surprising Places You See Cryptocurrency - 12th Jan 18
Semi Seconductor Stocks Canary Still Chirping, But He’s Gonna Croak in 2018 - 12th Jan 18
Land Rover Discovery Sport Panoramic Sunroof Questions Answered - 12th Jan 18
Information About Trading With Alpari And Its Advantages - 12th Jan 18

Market Oracle FREE Newsletter

6 Critical Money Making Rules

Gold Cracks Support and Plunges to New Lows - How Low Will Price Go?

Commodities / Gold and Silver 2015 Jul 27, 2015 - 07:15 AM GMT

By: Clive_Maund

Commodities

Gold cracked support and plunged to new lows since the last update, which came as no surprise to us. So what now? We are seeing signs that a recovery rally is about to begin, but it probably won't get all that far before a new downleg gets underway that sees gold make new lows again.

It's not just gold prices that are suffering - the entire commodity complex is in ragged retreat, with steep falls also in copper and oil. Why is this? The reason is that the gathering forces of deflation are starting to wreak havoc, and they are not going to be stopped by more QE - even if they print another $10 trillion to throw at the problem. The reason is that the debt mountain dwarfs whatever QE can be generated, and the deflation will continue until this debt is purged. Governments are like greedy short-sighted children - they are not interested in doing what is right and behaving with restraint and propriety, if they were they would have taken control of the debt crisis long ago.


They are only interested in short-term expediency, which is why we have had all this extend and pretend of recent years, involving QE and suppressing interest rates. Since they refuse to do their job properly, the markets are going to take over and do it for them, and the results are going to be very ugly indeed. Soon the rot will extend from commodities to stockmarkets.

It was certainly an interesting two weeks in the gold and silver space since the last update. The plunge in the PM sector didn't surprise us, on the contrary we welcomed it because we were short the sector. Our DUST ETF doubled. Now though, we are seeing signs of an imminent bounce.

On gold's 6-month chart we can see the nasty plunge that followed failure of support at the March lows, but after one big down day there was little follow through, and on Friday, after making new lows intraday, gold closed back up again leaving behind a bull hammer on its chart, with the heavy volume confirming that this was very probably at least a short-term reversal.

Gold 6-Month Chart

The 1-year chart for gold is also very interesting and useful as it makes plain the importance of the support failure, which dates back not just to the March low, but also to the November low. The failure of this support was a terrible shock for remaining gold longs, many of whom were running around like headless chickens, and dumping gold and silver stocks willy-nilly for whatever they could get for them. We'll come to this later when we take a brief look at the chart for GDX.

Gold 1-Year Chart

Gold's long-term 8-year chart puts things into more perspective. On this chart we can see that, although gold appears to be starting to break down into the C-leg of the bearmarket that is expected to take it below $1000, it is hanging on by the tips of its fingernails to the bottom boundary of the recent 2-year long downsloping consolidation, at which point the short-term bullish action on Friday across the sector developed. This, coupled with the latest COTs which are positive, is what makes us think that a rally is now imminent, but it will likely get no further than the upper boundary of the channel shown on this chart, meaning not higher than about $1170 maximum. A possible scenario is shown.

Gold 8-Year Chart

The latest COT chart shown below is the most positive I can recall seeing, which is a big reason to take profits in short positions, and is what we are doing. Commercial short positions have all but vanished - and you can bet these guys have booked huge profits - while the hapless large Specs have "thrown in the towel" and all but quit gold. Of course there is nothing to say that gold won't eventually continue lower and the Commercials go long, while the Large Specs go short, which has never happened in recent years.

Gold COT

The longer-term Hedgers chart shows readings at one of their most positive levels ever - you certainly wouldn't want to overstay your welcome on the short side with readings at these levels - better to wait for them to calm down some before considering shorting the sector again.

Gold Hedgers Position

Chart courtesy of www.sentimentrader.com

The Gold Optix continues to look quite strongly bullish and suggests that, while gold's bearmarket is believed to have some way to run, we should be on the lookout for a final low before too much longer.

Gold Optix

Chart courtesy of www.sentimentrader.com

Both these sentimentrader charts go back to early 2011, in order to show the entire period from the bullmarket high of April - May 2011.

What about the all-important dollar? A scenario that dovetails with our outlook for gold (and silver), which is for a significant bounce to be followed by renewed decline, is shown on the dollar's 14-month chart below. On this chart for the dollar index we can see that although it broke upside out of its recent Triangle, which is believed to be a consolidation pattern, it has lacked follow through so far and looks rather frail. What we therefore suspect may happen here is that the dollar pulls back to test support near to the apex of the Triangle, before a more determined advance into the next major upleg gets going, as shown on the chart.

US Dollar Index 14-Month Chart

Another factor suggesting that a rally of sorts is about to start across the PM sector is the all-out pandemonium that broke out amongst surviving gold stock aficionados when gold broke lower, which is shown clearly by the huge volume on the GDX at the time. This smacks of capitulation - they simply couldn't take any more. The declines in stocks like Barrick and some others were amazing.

Market Vectors Gold Miners 6-Month Chart

Finally, it is worth digressing a little to point out a couple of developments that appear to have gone largely unheeded by investors in the broad US stockmarkets. The first is that commodity markets started to cave in in July of 2008, several months before US stockmarkets tanked in the Fall of that year. The second is the recent collapse in the Chinese stockmarket. To most investors in the US market, the stockmarkets of mainland China might as well be on Mars, or that newly discovered Earthlike planet, yet, it's worth recalling that the Chinese stockmarket crashed in 2008, just ahead of the US stockmarket crash. Below are presented two charts for a 27-month month timeframe for the S&P500 index, one that embraces the 2008 market crash, and the other leading up to now, with the Chinese stockmarket and the Commodity index overlaid at the top and bottom of the chart. This ought to get you thinking about what may be coming down the pipe for the US stockmarekt (and other stockmarkets).

SPX 27-Month Chart

SPX, CRB Commodity Index and Shanghai Composite Index 27-Month Chart

There is an argument that the US stockmarkets will be the beneficiary of "funk money" fleeing the growing chaos in Europe and elsewhere, and so hold up or even rally, and while this could happen it may be wishful thinking, as when big global markets cave in, they like company, and in the writer's experience they are like a flock of sheep and they all go together when they go. Observe how the S&P500 index is rounding over gradually beneath a giant menacing Distribution Dome (the point of origin of this Dome is a peak in October 2011, off the chart) - once this thing goes, no-one can ever say that it didn't give plenty of warning first. It's a dream setup for traders as you establish short positions when the index is close to the Dome boundary, and have a general stop above the Dome boundary. If you are right you are rolling in loot when it finally breaks down and caves in. If you are wrong and it goes on to break out upside, you are out for a minor loss - as a trading setup what more could you want??

By Clive Maund
CliveMaund.com

For billing & subscription questions: subscriptions@clivemaund.com

© 2015 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