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Gold & Silver Update

Gold Market Analyst & Author
October 28, 2013
As in my last analysis expected the sentiment was so depressed that Gold had to rally.
 
 
 
 
 
Arguments for lower prices:
 
  • Gold overall still in a downtrend. US$1,525.00 is the line in the sand. Gold will need much more time to break through this heavy resistance.
  • MACD sell signal on monthly chart still active.
  • Gold close to reaching resistance at upper Bollinger Band (US$1,357.89)
  • Gold close to reach 61.8% Fibonacci Retracement (from US$1,434.00 down to US$1,252.00) at US$1,364,09US$.
  • Gold´s 50MA (US$1,343.50) is resistance and might lead to at least some more days of digestion around US$1,350.00.
  • Gold Bears still alive and just waiting to fight back. As well there is still a lot of insecurity in the gold market. It will take more time to create a new bull-trend. Nasty setbacks/short-term corrections are just a question of time (study the recovery from the 2008 lows up to US$1,008.00 in february 2009, it was a very nice rally but a very wild ride as well....).
  • ETF Gold demand continues to be very weak.
  • US-Dollar sentiment worsened, now with less than 25% bullishness for the first time since March 2012. The dollar has had a good record at bouncing for 1-3 months with such sour sentiment, so a continued decline, especially under the 2012 lows, will have very negative long-term implications. Technically US-Dollar is moving into a falling (and therefore bullish) wedge since early july. A breakout could lead to a quick short-covering rally. As well CoT-Data from 4 weeks ago have seen an unusual high increase in the commercial short-position for the EURO. Short-term probability for at least a bounce in the US-Dollar is getting more and more likely. This of course would affect Gold & Silver negatively.  
 
Arguments for higher prices:
 
  • MACD buy signal & Slow Stochastic buy signal on the weekly Gold chart.
  • Slow Stochastic on the daily chart with both lines above 80. The uptrend is locked in.
  • P&F-Chart now in bull mode. Gold clearly broke through the one year old downtrend.
  • According to latest Public Opinion data, optimism improved for gold & silver but is still far away from excessive optimism.
  • Optimism for Gold Bugs Index now is neutral (50%bullishness).
  • Seasonality now favorable for Gold & Silver.
  • Gold/Silver Ratio (59,87) looks promising and close to breaking below 58.80. A falling ratio confirms a new rally in precious metals.
  • Gold-Stocks seem to be ready to finally start outperforming Gold again.
  • While Gold ETF´s like GLD have seen massive outflows in the last 12 months, the physically backed Sprott Gold ETF lost only 2 tons.
  • Incredibly strong demand from China. Now seasonal buying from Asia will increase.
  • U.S.Dollar continues to be weak and trading below its 50-MA (80.80) and below its 200-MA (81.76). Death cross is playing out.
  • US-budget & debt ceiling theatre will start again in january.
  • China’s Dagong Global Credit Rating cut its credit rating for United States debt by one notch to A-minus from A, saying an agreement reached by Congress to raise the government’s borrowing ceiling failed to address the root cause of its debt issue. The interesting point about this is that now the market seems to be paying attention to these statements from China while before nobody would have cared.
  • The Fed will have to continue with QE and might even increase it. Tappering is off the table.
  • As Marc Faber put it: "Gold Is Bottoming Out Here. We have a lot of bearish sentiment and a lot of bearish commentaries about gold, but the fact is that...prices are probably in the process of bottoming out here".  
     
Conclusion:
 
  • As in my last analysis expected the sentiment was so depressed that Gold had to rally.
  • If Gold manages to take out US$1,364.00 (61.8% Fibonacci) we not only do have higher lows but the move from US$1,434.00 down to US$1,252.00 would prove to be corrective. Meaning the new uptrend is now starting its second up leg targeting US$1,500.00-US$1,520.00 within the next two or three months.
  • Short-term Gold bulls are clearly in control and might push Gold up to next resistance level around US1,375.00. Either from there or latest at US1,430.00 we should expect another correction down to either the rising 21-MA (US$1,312.47) or the new uptrend line (triangle formation).
  • Bulls should protect their long positions with a trailing stop below the 21-MA (US$1,312.47). 
  • Investors with a long-term perspective should continue to accumulate physical Gold and Silver while they are still hated and cheap.   
 
Long-Term:
 
  • Nothing has changed
  • Precious Metals bull market continues and is moving step by step closer to the final parabolic phase (could start in summer 2014 & last for 2-3 years or maybe later)
  • Price target DowJones/Gold Ratio ca. 1:1
  • Price target Gold/Silver Ratio ca. 10:1
  • Fundamentally, Gold is now starting to move into the final 3rd phase of this long term bull market. 1st stage saw the miners closing their hedgebooks, 2nd stage continuously presented us news about institutions and central banks buying or repatriating gold. The evolving 3rd and finally parabolic stage will end in the distribution to small inexperienced new investors who will be subject to blind greed and frenzied panic.
 
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Germany

Florian Grummes (born 1975 in Munich) has been  studying and trading the Gold market since 2003. In 2008 he started publishing a bi-weekly extensive gold analysis containing technical chart analysis as well as fundamental and sentiment analysis. Parallel to his trading business he is also a very creative & successful composer, songwriter and music producer. You can reach Florian at: [email protected].


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