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Technically the picture for gold now
looks strongly bullish. Action played out last week exactly as predicted in
the last update with gold breaking down from its Pennant pattern AND
ABORTING THE BEARISH IMPLICATIONS OF THE PENNANT, by dropping back
modestly instead of plunging. It arrived back in our target zone near $1600
on Thursday and then reversed quite sharply to the upside on Friday. While
nothing is guaranteed in this business and there is still a reduced chance of
its being a Pennant with an amended lower boundary, this action implies that
a positive QE-rich resolution of sorts of the acute problems in Europe is
imminent, despite the severe and intractable problems there.
If we do see a QE-rich "solution" to the problems in Europe shortly
then we can expect both gold and silver to re-enter robust uptrends, and this
is what the latest COTs are pointing to. The latest COTs for gold show that
Commercial short positions dropped back further to a record low last week. This augurs well
for a new uptrend.
In the light of the outlook for gold based on what we have observed above, the
charts for the dollar are rather perplexing. On its year-to-date chart we can
see that it appears to be in position to stage another strong upleg, or at least a bounce, as following a strong
breakout move it has reacted back to a zone of support near to its rising
50-day moving average, following a normally bullish cross of its moving
averages. However, the COTs for the dollar remain strongly bearish, and the
COTs for the euro remain strongly bullish, as shown below, implying that
despite the potential for renewed advance it is going to crash this support
soon and head back towards the lower support shown, which fits with the
bullish outlook for gold and silver at this time.
One final point - the times of greatest opportunity are usually masked by
danger, and there is certainly great danger at this time of Europe failing
and thus a lot of associated fear in the markets. Could things get even worse
and tank the markets, possibly including gold and silver? - yes, of course
they could and we looked at this blood curdling scenario last week, but
whether or not this occurs one thing is clear - the normally right
Commercials are banking on a resolution of this crisis and soon, and if
things do get even worse it is safe to assume that their positions will
become even more lopsided. We tend to assume that gold and silver will
automatically drop in a market crash scenario, as in the past this has
resulted in funds fleeing to the safety of the US dollar and Treasuries, but
it could be that during the next such crash this will not happen, because the
dollar and Treasuries may no longer be perceived as safe havens what with US
banks failing all over the place, and if that were to be the case investors
would be left with precious few options, and might look instead to the
Precious Metals as a refuge, with the result that they either don’t get
dragged down much in the general melee or even advance.
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