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Last week we wrote about Silver so this week we
decided to provide an update on Gold. In looking at the price action and
sentiment indicators we find that Gold is once again ripe for what is
becoming an annual seasonal breakout. Gold has broken to a new all-time high
in three of the past four years and presently, we are anticipating another
breakout.
Gold is entering the third month of a consolidation that has range
from $1475 to $1560. This tight consolidation is looking like a bullish flag,
which is a continuation pattern. It “continues” the previous
trend, which of course was bullish. The flag projects to $1825. We have a
near-term Fibonacci projection of $1742. Finally, there is a long-term strong
Fibonacci target of roughly $1820.
The Commitment of Traders data (source: timingcharts.com) for Gold remains very
encouraging. Commercial hedgers are short 202K contracts (as of last
Tuesday). This is well below the October 2010 high of about 300K contracts
short. Aside from one or two weeks, their current short position is at a
two-year low. Furthermore, open interest is well below the recent high and in
fact fairly close to a one-year low. The COT data indicates a very low amount
of speculation in the Gold market. Certainly we will need to see that pickup
in order for Gold to breakout.
Note the public opinion from sentimentrader.com.
It is only 57% bulls. While not so low we have to view it in the context of a
strong bull market. It is a two-year low.
Furthermore, as usual, none of the clowns…I mean Wall Street
analysts have an ounce of bullishness regarding Gold. The following is from
the Erste Group’s July Gold Report:
According to a survey by Barclays not a single one of the 100
institutional investors expects gold to close 2011 among the top performers.
On the other hand, the precious metal received the second-highest number of
votes – behind natural gas – as expected worst performer of 2011.
The 22 gold analysts covered by Bloomberg do not come across as very
enthusiastic either, as the following screenshot illustrates. The consensus
expects a sharp decline in the gold price from 2012 onwards. The median price
targets were USD 1,450 (2011), USD 1,400 (2012), USD 1,231 (2013), and USD
1,159 (2014).
There you have it. Price action is bullish and sentiment indicators
are quite supportive of the bullish cause. We didn’t discuss how the
mining shares actually bottomed prior to the latest bottom in the metals.
Several months back the mining shares peaked before the metals. Now we see
the reverse. Such action is typical of turning points. Perhaps it is too good
to be true but until proven otherwise, we have to anticipate another seasonal
breakout in Gold.
Not only is Gold set to breakout but this could finally be the
breakout that accelerates this bull market into the beginnings of a bubble.
Folks, we are 12 years into this bull market and based on a typical bull
market, the returns over the next few years will accelerate relative to the
previous few years.
Jordan Roy
Byrne
Trendsman.com
Jordan
Roy-Byrne, CMT is the editor and publisher of Trendsman.com. You can get a
free 14-day trial to his Gold/Silver service by clicking
here.
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