Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Dow Forecasting Neural Nets, Crossing the Rubicon With Three High Risk Chinese Tech Stocks - 18th Sep 21
If Post-1971 Monetary System Is Bad, Why Isn’t Gold Higher? - 18th Sep 21
Stock Market Shaking Off the Taper Blues - 18th Sep 21
So... This Happened! One Crypto Goes From "Little-Known" -to- "Top 10" in 6 Weeks - 18th Sep 21
Why a Financial Markets "Panic" May Be Just Around the Corner - 18th Sep 21
An Update on the End of College… and a New Way to Profit - 16th Sep 21
What Kind of Support and Services Can Your Accountant Provide? Your Main Questions Answered - 16th Sep 21
Consistent performance makes waste a good place to buy stocks - 16th Sep 21
Dow Stock Market Trend Forecasting Neural Nets Pattern Recognition - 15th Sep 21
Eurozone Impact on Gold: The ECB and the Phantom Taper - 15th Sep 21
Fed To Taper into Weakening Economy - 15th Sep 21
Gold Miners: Last of the Summer Wine - 15th Sep 21
How does product development affect a company’s market value? - 15th Sep 21
Types of Investment Property to Become Familiar with - 15th Sep 21
Is This the "Kiss of Death" for the Stocks Bull Market? - 14th Sep 21
Where Are the Stock Market Fireworks? - 14th Sep 21
Play-To-Earn Cryptocurrency Games Gain More and Is Set to Expand - 14th Sep 21
The CashFX TAP Platform - Catering to Bull Investors and Bear Investors Alike - 14th Sep 21
Why every serious investor should be focused on blockchain technology - 13th Sep 21
SPX Base Projection Reached – End of the Line? - 13th Sep 21
There are diverse ways to finance the purchase of a car - 13th Sep 21
6 Tips For Wise Investment - 13th Sep 21 - Mark_Adan
Gold Price Back Below $1,800! - 10th Sep 21
The Inflation/Deflation debate wears on… - 10th Sep 21
Silver Price seen tracking Copper prices higher - 10th Sep 21
The Pitfalls of Not Using a Solicitor for Your Divorce - 10th Sep 21
Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
This Boom-Bust Cycle in US Home Ownership Should Give Home Shoppers Pause - 9th Sep 21
Stock Market September Smackdown Coming Next? - 9th Sep 21 - Monica_Kingsley
Crazy Crypto Markets How to Buy Bitcoin, Litecoin for Half Market Price and Sell for TRIPLE! - 8th Sep 21
Sun Sea and Sand UK Holidays 2021, Scarborough in VR 180 3D! - 8th Sep 21
Bitcoin BTC Price Detailed Trend Forecast Into End 2021 - 8th Sep 21
Hyper Growth Stocks - This billionaire is now using one of our top strategies - 8th Sep 21
6 common trading mistakes to avoid at all costs - 8th Sep 21
US Dollar Upswing, S&P 500 and Nasdaq Outlook - 7th Sep 21
Dovish Assassins of the USD Index - 7th Sep 21
Weak August Payrolls: Why We Should Care - 7th Sep 21
A Mixed Stock Market - Still - 6th Sep 21
Energy Metals Build Momentum; Silver & Platinum May Follow - 6th Sep 21
What‘s Not to Love About Crypto Market Fireworks - 6th Sep 21
Surging US Home Prices and Gold – What’s the Link? - 6th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Price Crash Through Key Support, Crude Oil in Freefall

Commodities / Gold and Silver 2014 Nov 03, 2014 - 04:36 AM GMT

By: Clive_Maund

Commodities

Gold finally crashed key support at last year's lows on Friday, which was a very bearish development that has opened up the prospect of an immediate severe decline at least to the strong support in the $1,000 area. Such a decline will have grave consequences for the Precious Metals mining industry, whose costs have risen sharply in recent years, and is expected to lead to a massive wave of company failures, as many who have been "hanging on by their fingernails" finally lose the fight and disappear over the cliff. This will eventually lead to an acute gold supply shortage, which will be exacerbated after the dollar's deflation panic "swan song" rally is done, and the dollar is then pushed off its perch as the global reserve currency by the actions of China and Russia (and others) working in concert to bring it down. This will lead to a massive resurgence in gold and silver and to the stocks of mining companies who weather the imminent Great Cull going ballistic.


That's all in the future - the immediate prospects are grim. We will now review the charts, starting with gold's 18-month chart. On this chart we can see the decisive breakdown on Friday, on the heaviest volume for well over a year. This breakdown was a very bearish development that is expected to lead to a steep drop in the face of a continuing rise in the dollar, as money panics out of Europe and other trouble spots, seeking safe haven. Before leaving this chart note the bearishly aligned moving averages and the fact that gold is not yet very oversold on its MACD - it can get a lot worse than this and looks set to.

Gold 18-Month Chart

On its 15-year chart we can see that, unlike silver, gold broke down from its major long-term uptrend a while back, a bearish development that has now been compounded by the aforementioned support failure, and confirmed by silver breaking down from its long-term uptrend just last week. There can now be no illusions that the long-term bullmarket is intact - not until the dollar tops out, that is. No serious support comes into play until gold has dropped into the $1000 area - that is where it now appears to be headed, and with the dollar uptrend resuming it could get there fast, with some chance of it going even lower.

Gold 15-Year Chart

Gold's latest COT doesn't look too bad, it is in middling ground, but we can see the bearish buildup in Commercial short and Large Spec long positions over the past several weeks that lead to last week's breakdown.

Gold COT

Gold's breakdown on Friday was triggered by the dollar rally resuming and it breaking out to new highs on Friday, as we can see on the 6-month chart for the dollar index shown below. The dollar's renewed advance follows the successful completion of a small Flag consolidation. This Flag has measuring implications - these Flags tend to "fly at half mast", meaning that the advance following a Flag is usually of the same magnitude as the advance that preceded it. This gives us a target for the rally in the dollar index at about 91.5 minimum. This is where we should assess the damage to gold with a view to figuring whether it has hit bottom or not.

US Dollar Index 6-Month Chart

Despite already being monstrously oversold relative to bullion, gold stocks were "taken to the woodshed" yet again last week as a result of gold and silver breaking lower, and suffered further heavy losses, as we can see on the 5-year chart for the HUI index shown below. They are now in freefall, and clearly, if gold now drops to its big support in the $1,000 area, they can be expected to continue to plummet, and it is reasonable to expect to see a downleg of similar magnitude to the one that lead into the big consolidation pattern of the past 15-months.

HUI 5-Year Chart

Although the immediate outlook is awful, we should keep in mind that the all-pervasive negativity towards the sector is a sign that a major bottom is not too far over the horizon. Firm evidence of that is provided by the 7-year chart for the Gold Miner's Bullish Percent Index. This shows a truly extraordinary situation where, already, no-one is bullish in the sector. This is the "dry tinder" for an explosive rebound immediately the market senses that the bottom is in. The prolonged rotten performance of stocks relative to bullion is a reminder that we can expect stocks to front run the bottom in the metals. On only two occasions in the life of this chart have we seen such an abysmally low reading in this index. One was the 2008 general market panic low, which was followed by a huge rally in the Precious Metals sector lasting several years into the 2011 top, and the other, in the Summer of last year, was followed by a bounce and then the development of the long trading range that preceded last week's breakdown.

BPGDM 7-Year Chart

Just how horribly oversold stocks are relative to bullion is made plain by the following two charts, which show first the HUI index over gold, and then the large stock XAU index over gold, which is even worse. To understand what this means, you have to realize that when investors are fearful towards this sector they favor bullion over stocks, because while companies can and do go bust, gold bullion always survives, whatever its price in fiat. The more fearful they are towards the sector, the lower these ratios go, and as we can see, they are considerably more fearful towards the sector than they were at the 2008 crash low, and with respect to the HUI Index over gold ratio, they are as fearful towards the sector as they were in late 2000, before the great bull market in gold and silver began, and much more so with respect to large cap stocks, as shown by the XAU index over gold ratio, whose reading is much lower than in late 2000. These are clearly extremes of fear that have major bullish implications. What it means is that once the dollar's swan song deflation rally is done, we are likely to see a humongous recovery in gold and silver stocks, magnified by the fact that many companies will have already "gone to the wall" by the time it happens.

HUI;Gold 20-Year Chart

XAU:Gold 20-Year Chart

In conclusion it appears what we are about to witness is the sector collapse into the final low, before a recovery that promises to be amazingly robust. This collapse will trigger an industry wide cull and cleanout. It will be like the Black Death with bodies being taken away by the cartload, but the companies that pull through this terrible time can look forward to the prospect of an extraordinary resurgence in fortunes, and a correspondingly big increase in their share prices. Those of you who have any capital left should make sure you don't miss out on this.

We are going to end with a sideways look at what is going on in oil, which looks to break down imminently from the bear Flag that has been forming in recent weeks. It looks set to crash major support and plummet, and in part this will of course be due to the continued rise in the dollar.

While US elites are doubtless chortling with mirth at the thought of the squeeze being put on Putin and Russia by the falling oil price, they will be laughing on the other side of their faces when they realize what this means for the US fracking and oil shale energy boom. For Russia, the falling oil price is not the end of the world - they will sell their oil but get a lower price, but for the high cost fracking and oil shale operations in the US, a big drop in the price of oil is disastrous, as it will quickly make them uneconomic and force them to shut down operations.

Our 6-month chart for West Texas Light Crude shows a tight completing bear Flag or Pennant, breakdown from which looks imminent. A breakdown from this pattern is expected to lead to another sharp drop that could be much worse than the one early in October.

Light Crude 6-Month Chart

The reason it may be much worse becomes clear when we look at the 10-year chart. On this chart we see that breakdown from the Flag/Pennant is likely to lead to oil crashing support at its 2010 and 2011 lows. It could easily plummet from here, back to the $50 - $60 area or even lower. Fundamentally the reason for such a drop would be a combination of a higher dollar with sagging demand in recession wracked places like Europe, and overpumping by places like Saudi Arabia anxious to make good revenue shortfalls by ramping up output.

Light Crude 10-Year Chart

On the site we will look at a way to capitalize on the anticipated steep drop in the price of oil, that is believed to be imminent.

By Clive Maund
CliveMaund.com

For billing & subscription questions: subscriptions@clivemaund.com

© 2014 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