Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Silver Outlook Is 'Excellent' - 23rd July 19
Why The Coming Silver Rally Might Be The Greatest - 23rd July 19
We Are in for Decades of Ultra-Loose Monetary Policy - 23rd July 19
Gold & Gold GDX Stocks Ripping. What’s Next? - 23rd July 19
Stock Market Breadth Warning Signs for the Stock Market’s Rally? - 23rd July 19
U.S. Recession Watch: The Six-Cycle Forecast - 23rd July 19
US Dollar Index tightly wound between: US Bond Yields down on safety flows - 23rd July 19
Stocks Bull or Bear? The Market’s Message - 23rd July 19
This Dividend Aristocrat Is Leading the 5G Revolution - 22nd July 19
What the World Doesn’t Need Now is Lower Interest Rates - 22nd July 19
My Biggest 'Fear' For Silver - 22nd July 19
Reasons to Buy Pre-Owned Luxury Car from a Certified Dealer - 22nd July 19
Stock Market Increasing Technical Weakness - 22nd July 19
What Could The Next Gold Rally Look Like? - 22nd July 19
Stock Markets Setting Up For A Volatility Explosion – Are You Ready? - 22nd July 19
Anatomy of an Impulse Move in Gold and Silver Precious Metals - 22nd July 19
What you Really need to Know about the Stock Market - 22nd July 19
Has Next UK Financial Crisis Just Started? Bank Accounts Being Frozen - 21st July 19
Silver to Continue Lagging Gold, Will Struggle to Overcome $17 - 21st July 19
What’s With all the Weird Weather?  - 21st July 19
Halifax Stopping Customers Withdrawing Funds Online - UK Brexit Banking Crisis Starting? - 21st July 19
US House Prices Trend Forecast 2019 to 2021 - 20th July 19
MICROSOFT Cortana, Azure AI Platform Machine Intelligence Stock Investing Video - 20th July 19
Africa Rising – Population Explosion, Geopolitical and Economic Consquences - 20th July 19
Gold Mining Stocks Q2’19 Results Analysis - 20th July 19
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Gold Price Convincing Upside Breakout Triggering Start of Intermediate Uptrend

Commodities / Gold and Silver 2015 Dec 07, 2015 - 08:49 AM GMT

By: Clive_Maund

Commodities

On Thursday the dollar reversed dramatically to the downside and on Friday gold broke out upside, with both developments being predicated by the most bullish gold COTs for 14 years.

On gold's 3-month chart we can see that, after trying the patience of bulls for weeks as the COT pressure cooker intensified, gold finally broke out on Friday. This was a big decisive breakout on strong volume which COTs indicate is "the real deal". Fortunately the COTs were already so bullish a week ago that we went long ETFs, stocks and Calls before the breakout. As we can see, even after Friday's big move, there is lots more upside potential here, as gold is still heavily oversold on its MACD and way below its 200-day moving average.


Gold 3-Month Chart

Moving on to the 1-year chart, we can see why gold is turning up now, as it is at a classic cyclical low near to the bottom of the large downtrend channel shown. While it remains a fact that it is still in a downtrend, and its moving averages are still in bearish alignment, the super bullish COTs indicate that the least we can expect to see is a rally to the upper boundary of the downtrend channel, with the most being a breakout from the downtrend to kick off a major bullmarket phase.

Gold 1-Year Chart

Bearing in mind the super bullish COT, which we will come to shortly, it is very interesting to observe on the 7-year chart that a strongly converging and correspondingly bullish Falling Wedge may be completing in gold. If this is so, then an upside breakout from this prospective Wedge should occur soon, and if that happens gold is likely to enter a phase of rapid advance. The intensifying disparity between the amount of physical gold supply available and the avalanche of naked shorting of paper gold that has been used to suppress the price until now has created the conditions where an upside breakout from this Wedge could drive a massive spike. The pale red parallel channel line below caters to a worst case scenario that we were earlier wary of, but this has been rendered obsolete by the latest super bullish COTs. There is always the chance that the COT structure will rapidly deteriorate as the price of gold approaches the upper channel boundary, presaging a reversal to the downside again, but this is considered unlikely, and we will cross that bridge when we come to it.

Gold 7-Year Chart

Now to the latest COT, which as you can see makes plain why gold suddenly came bursting through the gate on Friday. The Commercials have now unloaded almost all of their shorts, and have not had such a low short position in gold (virtually non-existent) since late 2001. This tells you all you need to know - which is that we can expect a thumping great rally, even if the bearmarket up to now re-asserts itself later, which it may not - this COT is so bullish it may signal that gold's final low is in and it goes up from here. This should not really come as a surprise considering that we are headed in the direction of a major currency crisis, economic collapse and war, which not even the likes of Apple, Facebook and Netflix will have the power to deflect.

Gold COT

On we go to consider the startling reversal in the dollar on Thursday on its 3-month chart, which precipitated gold's breakout on Friday. Even though we knew it was likely from gold's COTs a week ago and from the Rising Wedge forming on the dollar chart, it was still of shocking magnitude, with the dollar index dropping by 2.3% in just one day, a massive move for a major currency. Ostensibly it was caused by the market's reaction to remarks by Draghi, the head of the ECB, but gold's COTs a week ago showed that this move was already "baked in" and Draghi was simply the catalyst or excuse. The point is that a move of this magnitude following a lengthy period of advance almost always signifies a major reversal. This drop may mark the beginning of the end for the dollar.

US Dollar Index 3-Month Chart

The importance of this dramatic turnaround in the dollar is further emphasized by where it occurred, which as we can see on the 18-month chart for the dollar index, was right at resistance at the March highs and at "round number" resistance at 100. What might be happening is that the dollar is building out a Double Top. Certainly it would seem to be wise to get out of dollar investments here and only consider getting back in if the dollar index can succeed in breaking above 100.

US Dollar Index 18-Month Chart

Conclusion: gold broke out convincingly on Friday to start an intermediate uptrend that will result in worthwhile gains from here for a wide range of investments across the sector. While the bearmarket may reassert itself later, latest gold COTs are so bullish that we may have seen the final low - it may be over. We will know if it succeeds in breaking out of the Falling Wedge shown on the 7-year chart.

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

© 2005-2019 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