first majestic silver

Gold Price Update

Technical Analyst & Author
November 8, 2015

The predictions made in the recent past for the dollar to rally and gold and silver to drop have proven to be correct. Gold has now dropped for 8 days in a row as we can see on its 3-month chart below, which common sense dictates is increasing the chances of a bounce soon, especially as Commercial short positions eased significantly last week and gold is arriving at a support level in an oversold condition. Gold is oversold relative to its moving averages, which are in bearish alignment.

On the 1-year chart we can see why gold’s drop may be arrested soon, at least temporarily, because it is arriving at a support level which turned the price back up in July and August, although if a big dollar rally is getting started, this won’t arrest the decline for long. What seems a likely scenario is that gold’s decline decelerates and it goes into a trading range for a few weeks near to the July lows before it becomes clearer what will happen next.

The latest COT chart shows that Commercial shorts, which had risen to a high level, prompting us to take a bearish tack, eased considerably last week, and remember that this chart is only up to date as of last Tuesday, so we can presume their shorts eased more later in the week as gold continued to drop. This is increasing the chances of a bounce here or soon, particularly as gold is now arriving at support in an oversold condition, as mentioned above. There is room for these positions to ease a lot more, which is why, perhaps after a bounce or the formation of a trading range, or both, gold looks set to break lower again.

The 7-year chart makes two things very clear. One is that gold remains in a bear market regardless of what the cheer leaders claim, as made plain by the fact that it is still stuck in the big downtrend channel shown, which also implies that dollar remains in a bull market. The other point this chart makes clear is that we are at a critical juncture here, because if gold breaks down below the pale inner channel shown, then it should drop away steeply towards the lower boundary of the channel, meaning it would target the low $800’s.

The biggest cause of gold’s weakness is of course the strong dollar, so now we will look at that. On the 3-month chart for the dollar index we can see that the bulls have definitely gotten control of the ball, with a new uptrend developing over the past several weeks, punctuated by big white candles, with the latest strength being triggered by a strong jobs report, prompting speculation that the Fed will raise rates soon, although this is really “much ado about nothing” because they will only raise them by 0.25% if they do. Still it would set off fears of a rate rise cycle which could cause the dollar and the stock market to part company after their chummy alliance of recent months, with the dollar heading north and the stock market heading south. In this scenario gold and stocks drop together, as they did in 2008.

On the 18-month chart we can put the dollar’s rise of recent weeks into context. As we can clearly see it looks like it is breaking out upside now from a sizeable bull Pennant with its moving averages swinging back into bullish alignment. The last obstacle for it to overcome is the resistance near to the March – April highs in the 100 area. While this could cap the advance it looks much more likely that it will break out to new highs to mount an advance of similar magnitude to the one preceding the Pennant, which means it would target the 120 area. Needless to say, a big dollar upleg such as this would really “put the cat among the pigeons”, causing a lot of chaos and consternation especially in the commodities markets and in Emerging Markets.

The reason that such a big dollar index rally is possible is that the dollar index basket is comprised about 57% of the euro, and the euro is really on the ropes, with the European Union heading for chaos, as its leaders desperately resort to the QE drug to avert an acute liquidity crisis. With the US having backed off from QE, at least for now, that only leaves one direction for the euro to go – down. The acute weakness of the euro in recent weeks is shown on its 3-month chart below, which is the reverse of the strong dollar chart. Long-term charts show that the euro is probably breaking down into another severe downleg.

We will shortly be reviewing what to do with our PM sector inverse ETFs on the site, in which we have racked up substantial gains in the recent past.

********

Courtesy of Courtesy of  http://www.clivemaund.com

Clive Maund

Clive P. Maund’s interest in markets started when, as an aimless youth searching for direction in his mid-20’s, he inherited some money. Unfortunately it was not enough to live a utopian lifestyle as a playboy or retire very young. Therefore on the advice of his brother, he bought a load of British Petroleum stock, which promptly went up 20% in the space of a few weeks. Clive sold them at the top…which really fired his imagination. The prospect of being able to buy securities and sell them later at a higher price, and make money for doing little or no work was most attractive – and so the quest began, especially as he had been further stoked up by watching from the sidelines with a mixture of fascination and envy as fortunes were made in the roaring gold and silver bull market of the late 70’s.

Clive furthered his education in Technical Analysis or charting by ordering various good books from the US and by applying what he learned at work on an everyday basis. He also obtained the UK Society of Technical Analysts’ Diploma.

The years following 2005 saw the boom phase of the Gold and Silver bull market, until they peaked in late 2011. While there is ongoing debate about whether that was the final high, it is not believed to be because of the continuing global debasement of fiat currency. The bear market since 2011 is viewed as being very similar to the 2-year reaction in the mid-70’s, which was preceded by a powerful advance and was followed by a gigantic parabolic price ramp. Moreover, Precious Metals should come back into their own when the various asset bubbles elsewhere burst, which looks set to happen anytime soon.

Visit Clive at his website: CliveMaund.com


China has only 2% of its Total Foreign Reserves in gold.
Top 5 Best Gold IRA Companies

Gold Eagle twitter                Like Gold Eagle on Facebook