A bevy of gold and silver miners are printing 52-week highs today. I believe this is significant because miners tend to lead the physical metals. This, in turn, suggests that gold and silver are probably close to their next legs higher. As I've said before, the intermediate and, arguably, the long-term trend has turned in the bull's favor. Don't try and outsmart the market by trading all of the day-to-day noise. Sit tight and be right. This move will play out for months and probably years.
Once again I'm sorry for the lack of posts recently. I've been out of town and away from a computer. To be honest, there wasn't a whole lot of action in the metals or the equities as most of the movement while I was gone fell into the "noise" category if you know what I mean. Well, at least until yesterday that is.
Two very important dates are now behind us: July 26 (Comex gold expiration) and July 27 (FOMC announcement). First, Comex gold expiration has always been a "play thing" of the bullion banks. Prices tend to get pegged or massaged in the days and weeks leading up to expiration based on max pain levels in the options markets. Very rarely do the metals rally into expiration. For that reason alone, I wasn't surprised to see gold and silver drift down in uninspiring trade. Keep in mind also that Silver trades on the heels of gold, just in a more volatile fashion. As gold goes, so does silver.
The second date, July 27 (yesterday), was the usual FOMC day where gold and silver get smashed the moment the announcement is made (the first reaction is literally always lower, regardless of the statement). FOMC days are a cluster and I would never recommend trying to trade an announcement. After the initial smash lower, there tends to be huge volatility in both directions. So it is likely that you will get whipsawed out of a position based on knee-jerk reaction trading. Also, it usually takes a day or two for the metals to settle down after the announcement.
So now that those two days are behind us, there really aren't any more wild cards in that I'm seeing in the short-term which should bode well for the PM sector. That said, let's take a look at some charts and see what's going on.
After reaching a new 52- week high of $1377 on July 6, gold has pulled back in a fairly orderly fashion on innocuous volume. Each of the last three pullbacks has now established a nice upward-sloping trend line, shown above. Yesterday, after the FOMC announcement (and the usual knee-jerk smash), gold reversed higher and jumped off that trend line, leaving a decent gap on the chart. Technically speaking, it's great for the bulls that the trend line acted as support once again. Don't be surprised if gold corrects a bit to fill that gap, but I think this chart is very supportive of a continued move higher.
Silver, to me anyway, is painting a much cleaner chart than gold. After printing a new 52-week high on July 3, just above $21, it too began to correct on light volume. For the next three weeks, it painted a beautiful pennant consolidation pattern (shown above). Yesterday it exploded higher in a no-doubt bullish breakout. I would put a conservative price target of $23.00 on the current advance based on the size and duration of the pennant formation. I'll explore the longer-term charts in a future post to see what that means in the big picture. But for now, the daily chart looks awfully bullish.
Moving on the miners, they too saw a healthy bounce yesterday post-FOMC. As you can see above, the 50 dma has been providing support for several months now. As a result, I would continue to expect this going forward. If you're looking for an entry point, waiting for a pullback to this level makes sense. Aside from a brief blip in May, the RSI mid-line has acted as support for the last six months so keep an eye on this as well if you're looking to get in. Overall, I really like the action in GDX. It's been grinding higher all year, with brief, shallow pullbacks along the way. I see nothing bearish on this chart.
Last but not least, I wanted to share the daily chart of Platinum - the much less talked about precious metal. I tweeted about this yesterday, so this chart may look familiar if you follow me. Talk about a beautiful cup-with-handle formation! Everything on this chart is working in the bull's favor. From the tight price action, to volume increases at exactly the right times, to yesterday's breakout - very, very nice. I don't post on Platinum too often, but the chart was so compelling that I wanted to show it.
That's all for today folks. Thanks so much for reading!
Regular readers know that I prefer to focus on longer-term charts since I'm not a trader. I think daily charts reflect too much noise and oftentimes give false signals. Weekly and monthly charts filter out a lot of that stuff and do a better job at showing more meaningful trends.
With that in mind, today's post will be annotated monthly charts of gold and silver. The gold chart, shown above on a log scale, is sooooooo close to definitively breaking out to the upside. Rallies in June and July have stopped precisely at the line of resistance originating from its 2011 peak. The monthly MACD and RSI have both undeniably turned higher after a brutal couple of years. In fact, the RSI has just pushed above the midline (bullish) for the first time since 2013. Volume has been increasing on the rallies which is what bulls want to see. The final nail in the bear market coffin will come when Gold can manage a monthly close above that descending blue trendline. If and when that happens, it has a clear shot, from a charting standpoint, at recapturing its 2011 highs.
[It's worth noting that if you plot the same chart above using a linear scale instead of a log scale, gold has already broken above that descending line of resistance.]
Moving on to silver, you can see that it's bottoming process is a bit more advanced that gold's. It has no doubt broken above its long-term line of resistance. It even backtested the line in May only to explode higher the following month. Bulls couldn't ask for a better chart formation. Similar to Gold, Silver's momentum indicators are moving higher in unison. The MACD has now printed a bullish cross-over signaling that the long-term momentum has shifted in the bull's favor.
From a support and resistance standpoint, Silver has already cleared the biggest hurdle now that it's overcome the long-term resistance on the chart. I'm seeing a bit of congestion in the low $20s and then again in the low $30s. Both areas will likely act as intermediate resistance but nothing too major.
All in all, both metals are painting a very bullish technical picture. Throw in some extremely strong fundamental arguments for higher prices, and we have a winning combination.
And just for fun, I'll leave you with this 50 year chart of Silver..........
This is another post where I'm going to let the charts do the talking. I'm seeing extremely bullish formations across the commodities complex. While it's taken longer than I ever expected, the Fed's easy money policies of the past 8 years are finally starting to manifest themselves in commodity prices. I don't care if demand is falling off a cliff (which it is in many areas), when you print $Billions ($Trillions?) that money has got to go somewhere.
First I'll look at the precious metals, including Platinum and Palladium:
And now moving on some big-time industrial commodities:
And lastly, Copper has slowly started to turn things around. I assure you this due to central bank policies and NOT a sudden upswing in demand.
I have to be honest - I did not think Brexit had a chance. Apparently Wall Street didn't either because trading on Friday was a disaster for equity markets around the world, with banks taking a particularly hard beating. There was a very clear flight to safety with defensive sectors like Utilities and precious metals outperforming. Speaking of precious metals, gold, silver, and the miners had a terrific day as you will see below.
The tide is turning folks. Equity markets, depending on how one measures valuation, are at or near all-time highs. Earnings have been declining for months and yet stocks continued to march higher (at least until yesterday). Precious metals have been bottoming for over a year as both fundamentals and technicals continue to tilt in the bull's favor. In my post from Wednesday I commented, "I feel like there is going to be a huge move soon, possibly in [both equities and precious metals], but I have no idea which direction it will be." Well, I think Brexit has given us the answer.
Today's post will be chart-heavy with annotations and a few comments smattered about. My takeaway from Friday is nothing more than a confirmation of what I've been saying for over a year: equity markets are topping and precious metals are bottoming - it's time to position yourself accordingly.
First up is a look at the S&P 500 daily and weekly charts. Friday did a ton of damage to the bullish thesis. If the 7-year bull market is still intact, it's going to be a long, hard slog to repair what has happened in a single trading session. 2100 has become a very clear line of resistance - just check out the weekly chart to see what I mean.
And on to the Nasdaq. Same story, different index. Down 4% in a single day with massive volume to boot.
And a quick peek at Financials. Lots of room to fall to that lower line of support.
I specifically wanted to show you a couple charts of our old friend Deutsche Bank. It's now trading just pennies away from all-time lows. The word FUBAR comes to mind...
Now we head to the stars of Friday's show: precious metals and miners. First, we start with gold.
And now a look at gold's more volatile sibling, silver. Silver's move on Friday stopped right at big-time resistance. Look back at 2013 and 2014 and you'll see that $18.50 provided support for a long time. Once that level was breached in September 2014, it became resistance with lots of overhead supply sitting on top. Also, I would like to note the curious lack of volume on Friday. Not sure what it means, if anything. Overall, silver continues to paint a very bullish picture on the charts.
The gold miners continue to look good as well.
I'm going to end with the WTF chart of the day. Take a look at the FTSE weekly chart. If you're not familiar with it, the FTSE is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. In other words, it's very similar to the Dow Jones Industrial Average. Did you know that after Friday's bloodbath the FTSE still gained 2% on the week?
First, my apologies for not posting much lately. To be honest, there hasn't been a lot of new developments over the last several weeks. Equity markets and precious metals alike continue to churn sideways. I feel like there is going to be a huge move soon, possibly in both markets, but I have no idea which direction it will be. The S&P 500 still has not made a new 52 week high in over a year, but at the same time it continues to float just a hair below all-time highs. Gold and Silver saw an explosive move higher to start the year but they've essentially moved sideways since February. That's not a bad thing, by the way. They definitely needed to consolidate their gains, but it makes it really difficult for bloggers like me to tease out any useful insights!
Anyway, here are the charts prior to the Brexit madness. I've added support and resistance lines as an FYI. As of today, gold, silver, and the miners are all firmly within their up trends. What happens tomorrow is anybody's guess.
If you follow me on Twitter (@goldsqueeze1) then you may remember seeing this tweet from May 18. I've been watching the GSR closely since the start of the year because there's been a significant trend shift from bullish to bearish. (Note: a bullish GSR means that gold is outperforming silver and a bearish GSR means that silver is outperforming gold.) We saw the first signs of the sea change back in April which I wrote about at the time. As is usually the case, long-term trends don't die easily. Once the uptrend was definitively broken, the GSR fought all the way back to test the underside of its previous trend. See below:
Since the backtest, the gold:silver ratio has really started to break down once again. Momentum indicators are mess, especially the MACD which is sitting at 3 year lows. The behavior of the GSR suggests that it's heading lower, perhaps significantly so, over the next year or two. Again, this doesn't mean that gold will fall and silver will rise. It just means that silver will start outperforming gold on a relative basis. If you believe that gold and silver have now entered a new cyclical bull market (as I do), then both metals should rise over time with silver posting out-sized returns.
You may be wondering why I boldly claim that a "major move" is coming for silver. For that explanation, let me direct your attention to the following chart:
This is the same weekly chart of the GSR, but taken back a few more years. The similarities are eerie. First, there was multi-year uptrend from 2008-2010 with a nearly identical slope to the uptrend from 2012-2016. Second, its MACD in 2010, just like today, was stuck on the zero line, unable to push into positive territory. And lastly, there was a definitive break of trendline support right when silver started breaking higher. Here's the silver chart with my annotations. Again, it's hard to ignore the similarities.
Will history repeat? Will it rhyme? If it comes anywhere close to what we saw in 2010-2011, then you most certainly want some exposure to silver in the coming months.
I wanted to provide a chart update on gold and silver after yesterday's drubbing. But before I do that, I want to say that I really blew it with my "No Time to Get Cute" post from a couple weeks ago. I couldn't have top-ticked the market any better, huh?
OK, with that off my chest, let's move on to the daily chart of silver and see what it's telling us. As you can see above, I've drawn the Fibonacci Retracement levels, something I haven't really done in the past, mostly because gold and silver were in a bear market for so long! Now that we have an uptrend on our hands, we can look at Fib levels to evaluate where potential reversal points may occur during a correction. What's interesting is that the 38.2% retracement level is identical to Silver's 50 dma. And, as expected, silver bounced as soon as it hit this level. From a technical point of view, that's good to see, especially since it found support at its 50 dma back in late February and again in early April. Bulls will want to see this trend continue. Time will tell. Relative strength and MACD look sick at the moment and volume has been picking up recently on the big down days. So between dual support at $16.35 and weakening relative strength, we should see a good battle between buyers and sellers at current levels. At the end of the day, silver probably needed to cool off and reset its momentum indicators before the next move higher.
Gold has hung in there a little better than silver of late and it too has found support at its 50 dma. As of this writing, it's only down about 4% from its high back in early May so I'm not sure it can even be considered a correction at this point. Since I added the Fib levels to the Silver chart I thought I might as well add them to the gold chart too. Right now gold is well above the 38.2% level, but if it loses its 50 dma, then $1205 seems like a reasonable place for support. Like silver, its momentum indicators look weak and volume is picking up a bit on the downside moves.
So to wrap things up, gold and silver are in a precarious spot in the short-term. The next two weeks should provide clarity on whether both metals will continue to correct or if the next move will be higher now that they found support at their respective 50 dmas. On the longer-term charts, gold and silver still look very bullish - it's just a matter how long and deep the current correction turns out to be.
Courtesy of Notes From the Rabbit Hole
I could write a long, detailed post trying to encompass global stock markets (generally bearish), commodities (bounce very mature) and bonds (mixed views, depending upon the flavor) but that is what I get paid to do each weekend in NFTRH reports and in private posts at the site. The beauty of public posts is that I can write as much or as little as I feel like writing. Today I feel like writing a little about gold (and silver) and the stock market. I also feel like using daily charts because I think time frames are pinching in for upcoming pivotal moves.
Gold is in a rather orderly Handle to a short-term Cup & Handle. Personally, I think gold and the precious metals complex need a correction because [insert CoT, Sentiment and over bought reasoning here]… But the chart thinks otherwise. If the Handle breaks upward and gold exceeds 1300, the measured target is to around 1370. It if goes the other way, watch for support beginning at the October high of 1191 down to 1180, figuring for wiggle room.
The weekly chart’s EMA 75, the former bear market shackle, agrees with that support.
Silver… if it looks like a short-term top and it quacks like a short-term top, is it a short-term top? If it is then the best support looks to be the 50% Fib retrace at 15.85.
Silver weekly shows the former bear market ball and chain as the EMA 55 at 15.77. Close enough to the 50% Fib to be in agreement on the general support area.
Silver would need to break below the daily chart’s EMA 20 (and the top channel line) to indicate that a correction is on. So far it is clinging to support. If that is given up, watch for the mid/high 15’s as a correction target.
The Gold-Silver ratio continues to show a bottoming stance after hitting deeply over sold levels. I like to use Silver-Gold when projecting a beneficial asset market environment and I like to flip it over to Gold-Silver when projecting a dangerous one. Well, it is flipped over…
Taking it a step further, a rising Gold-Silver ratio often goes with a rising US dollar, as liquidity comes out of markets. As bearish as Uncle Buck is on its intermediate trend, there is further short-term bounce potential, especially if the Gold-Silver ratio is bottoming.
This would not bode well for a stock market living on inflation expectations, because it sure is not living on corporate profit acceleration or guidance, apprehensive market sentiment or technical events like a higher high to October, close though it came. If the 50 day moving averages give out, look lower on the S&P 500, which is already losing momentum by MACD and RSI. The next stop could be at around the 2000 round number with further bearish probabilities if the SMA 200 were to give way.
If somehow silver reverses back upward to lead gold and the ‘inflation trade’ (including stocks) higher, it’s ‘party on, Garth’. But that is not the way things are pointing at this moment in time.
Gold is the first mover to new inflationary environments and silver is the best mover when it gets going and takes over leadership. Silver has led since mid-February (as noted in this post) and wouldn’t you know it, the stock market has rallied since then. But now silver’s leadership is in question.
I've seen at least a dozen articles this weekend, from both mainstream and alternative news sources, arguing for an imminent pullback in gold, silver, and the miners. Can you blame them? Just look at the YTD performance and tell me these aren't ripe for a pullback:
Most of the mining indices have literally doubled in the last four months. Think about that for a minute. The Philadelphia Gold & Silver Index, or XAU, is a market cap-weighted basket of 30 individual stocks, some of which are massive companies. For the XAU to double, it means that on average, all 30 companies have doubled. For one single stock to double in four months is rare, but for a basket of 30 stocks? Almost unheard of.
So why, as the title of this post suggests, would I argue for the rally to continue? Below I lay out the various arguments I've read calling for a pullback and then provide my rebuttal. Take a read and see what you think.
Argument #1: The massive net short position by the Comex bullion banks and the net long position of the hedge funds are at record highs.
The logic behind this argument is that Bullion Banks are the "smart money" and Hedge Funds are the "dumb money." Bullion banks are considered the smart money because they have an inside track on the precious metals market as they are the swap dealers and therefore the most "connected" with institutional supply and demand. It's important to know that bullion banks tend to take equal-but-opposite positions of the hedge funds. So, for example, if hedge funds are mildly net bearish, then bullion banks tend to be mildly net bullish. Argument #1 is based on the fact that oftentimes extreme bullion bank positioning is a good indicator of future price movement in the metals. Since bullion banks are the "smart money," price tends to move according to their positioning. So right now, these banks have a massive short position in gold and silver. On Thursday and Friday alone, the Comex banks sold short over 50,000 gold contracts representing 5 million paper ounces of gold worth over $6 billion (!). A major reversal must be on the horizon, right?
My counter to this argument is that while Comex positioning tends to indicate future price movements, it by no means is guaranteed. First and foremost, all of the positioning data is based on the COT report, reported weekly by the participating banks. As Dave Kranzler put it the other day, "...the veracity of the COT data is predicated on the reliability of reports generated by the likes of JP Morgan, HSBC and Scotia. If these banks are providing bona fide, non-fraudulent Comex data reports, it would be the only area of their entire business for which they are not publishing corrupted financial information." He is, of course, referencing the myriad of price rigging scandals perpetrated by the big banks which include the most recent admission of gold and silver price manipulation by Deutsche Bank. So for starters, if you base trading decisions on the COT report, you're assuming the data is clean and honest. Secondly, as Kranzler goes on to explain, there are plenty of times throughout history where gold and silver moved against extreme bullion bank positioning. This would suggest that the "conventional wisdom" of trading alongside the bullion banks is not always the right move. I suggest you read his post (linked above) for the full analysis. Bottom line, to sell here based solely on the COT report ignores plenty of historical precedent to the contrary.
Argument #2: Mining stocks have run too far too fast.
Now this is an argument I would typically agree with. As I laid out at the beginning, mining indices are up 100% in just four months with some individual junior miners up more than 500%. After these kinds of gains I would usually expect some consolidation. After all, the strongest bull markets need to pause and build bases from which future gains are made.
While I'm not arguing that "this time is different," I will argue that there are plenty of gains still to come before any significant consolidation. Take the weekly chart of GDX for example:
With it's close of $25.83 on Friday, it is officially up over 100% from its 2016 low of $12.40. That's a huge run no doubt, but you need to look at it in context of the bigger picture. After a 100% gain, the weekly RSI has only just now reached the overbought level. The MACD crossed above the center line only a few weeks ago. So if GDX could stay deeply oversold for literally years (2012-2016), then who's to say it can't stay overbought for the next 6 months or two years? Then, moving to the annotation I've made on the chart, there's a significant gap on the chart from April 2013 that's going to act like a tractor beam for price. Many, many times in technical analysis we see prices fill gaps on the chart. I believe that GDX has a one-way ticket to $31, the price at which the gap gets filled. That would represent a 20%+ gain from Friday's close.
Now, let's move on to Gold. First, I want to show the weekly chart:
While precious metals miners broke out weeks and months ago, gold just now is breaking out of its consolidation pattern. With a weekly close above the "handle," it's cleared the way for higher prices. Using $1045 as the low and $1265 as the breakout point, I measure the expected move to be somewhere in the neighborhood of $1500, or 15% higher than current levels. Again, plenty of room to run before a significant consolidation. The monthly chart only further solidifies my argument:
First and foremost, the monthly MACD has only recently made a bullish cross but it still remains deep in negative territory. The $200+ gains in 2016 just barely moved the needle. As my annotation states, there's a lot of room for gold to run just to get the MACD back to the zero line, much less into overbought territory. Secondly, my $1500 price target for gold is further supported by the fact that it lines up perfectly with my $31 price target for GDX. Both would reset the price back to April 2013 levels.
I'm running out of time so I'll wrap it up here. I was also going to argue that the new Yuan-denominated gold fix was yet another bullish variable to consider, so if you're interested, you can read a nice analysis posted here.
The bottom line here folks is that now is not the time to get cute and wait for a 15-20% pullback because I don't think it's happening for the arguments laid out above. Gold and silver were so oversold for so long that the beach ball can no longer be held below the surface. The "no-brainer" trade of selling any and all precious metals rallies has now reversed, and all those levered short positions and pair trades have to be unwound. Will we see a correction again? Yes, absolutely, but I don't think it will happen until prices hit the levels I noted above. And even then, with all of the craziness we're seeing in the financial markets (QE, ZIRP, NIRP, etc), who knows how long or deep any consolidation will actually be.