Technical analyst Clive Maund charts gold and
discusses the current state of the market.
The last update was wrong. Gold was expected to drop with the stock market,
but instead it rose. Being wrong in this business is not a crime, but it is
vital to recognize the error as soon as possible and make a course
correction, and if possible discern the reason or reasons for the error.
Failure to do this through pride, obstinacy or stupidity can lead to modest
losses becoming ruinous. So what happened?
Whilst recognizing that there are big differences between now and 2008, it
still looked likely that gold would get dragged down with the stock market
when it dropped hard due to a flight into cash driving the dollar up but so
far at least, this has not happened. Also it was thought that a
Head-and-Shoulders bottom was forming in the dollar, but on further
consideration, the pattern looks too tilted to be valid, and it now looks
instead like it is starting to break down from a bearish Rising Wedge whose
point of origin was back in March-April of this year (see dollar index chart
lower down the page).
The biggest difference between now and 2008 is that back then money flooded
into the dollar in order to buy Treasuries, but this time round that does not
appear to be happening, and it is not hard to see why. The last 10 years
since that financial crisis can fairly be likened to a wild party aboard the
Titanic, with the global economy stumbling forward in a zombiefied state,
powered by QE and ZIRP, which incidentally provided the opportunity for the
elites to drain the wealth of the lower and middle classes into their
coffers. The result of all this is that U.S. debt has now expanded further to
frightening and ruinous levels and the combination of this and the blatant
attempt by the U.S. to control the entire world via its dollar reserve
currency system through a combination of sanctions, crude military threats
and now tariffs is causing attitudes to harden so that other countries are
less and less prepared to pony up and support the U.S. by swapping goods and
services for piles of intrinsically worthless paper in the form of dollars
electronically created and then recycled into Treasuries.
Those who have been paying attention will know that other major powers
like China and Russia have been preparing to dump the dollar for a long time
now, by buying gold as fast as the West will sell it to them, devising their
own payments systems to replace the SWIFT system and making bilateral trade
agreements, etc. They also know that unless they have the military power to
defend themselves, they would at some point be subject to military aggression
by the U.S. if they try to cease using the dollar, hence their major effort
to beef up their defensive capabilities.
Thus, what we are seeing is an intensifying buyers strike with respect to
Treasuries that will continue to hike interest rates until the economy
implodes, a process which has already started. When this happens, and it
doesn't look far off, they will reach for their drug of choice, QE, which
will then collapse the dollar leading quickly to hyperinflation. The extent
to which the U.S. economy has been looted and plundered by the ruling elites
for decades now is not fully understood by the American masses; if they did
understand they would be marching on Washington. They have siphoned off
countless trillions into the military-industrial complex, waged costly and
destructive wars and invasions across the world, poured money into Israel,
sickened and weakened the general population with food adulterated with
countless additives and genetically modified food, and then made even more
money out of them by peddling them overpriced drugs and medical care,
destroyed the public transport system and created sprawling suburbs to
increase the profits of oil companies as you have to drive two or three times
as far to get anywhere as in Europe, killing town center communities and
replacing them with shopping malls, bled families white to pay for useless
production line college degrees, etc. It's no wonder there are so many crazies around—and that's before the
economy caves in.
All of this has racked up towering debts of astronomic proportions which
they expect foreign jackasses to support by adhering to the dollar reserve
currency system and accumulating intrinsically worthless IOUs in the form of
Treasuries. The trouble is that foreigners have been starting to wake up to
the fact that they have had a sign hanging round their necks for decades
saying "Idiot" and one on their backs saying "Kick me,"
and have been actively planning to extricate themselves from this situation
for some years now, by taking the steps set out in the paragraph above, which
include building up gold reserves. So they are steadily withdrawing from
supporting the Treasury market, which is going to leave the U.S. with a
massive problem as the economy contracts, interest rates rise, the debt
towers even higher, and the foreigners who have always been relied upon to
support the whole mess fail to step up to the plate. So it's not hard to see
why the dollar is set to plummet before too much longer, even if it gets some
temporary relief from the stock market crashing and the chaotic Eurozone
imploding.
Thus, the fact that the dollar failed to rally either on the severe drop
in the stock market of recent weeks or on the latest rate hike is viewed as
an ominous development, both for the dollar itself and for the economy. This
is what gold is picking up on and is the reason why it is has started to move
ahead over the past couple of weeks.
Now we will quickly review the charts, starting with the 6-month chart for
gold, on which we see that gold's advance over the past couple of weeks,
although modest and measured, is certainly impressive given how the stock
market has plunged during this period.
Just how impressive this move by gold has been is made plain by the chart
for gold for the same time period plotted against the U.S. S&P 500 index.
This shows an undeniably impressive performance by gold and reveals its newly
acquired intrinsic strength. Notice how this ratio goes up when the stock
market drops, and when the stock market rebounded the other day, it dropped.
This is exactly what investors in the precious metals sector want to see and
is the exact opposite of what happened in 2008.
Note that the latest COTs are not included in this update because they
have been delayed by the Christmas holidays, and will become available early
this week.
The key factor in all this is the dollar. Gold dropped in 2008 mainly
because the dollar rallied sharply, but as we have witnessed in recent weeks
this doesn't seem to be happening this time, for reasons that we have just
considered. In the last update we looked at a bullish scenario for the
dollar, which now seems to be off the table, and we later looked at a bearish
scenario for the dollar on the site, which we will now review on the year-to-date
chart for the dollar index below. This chart shows that the dollar is
struggling here and on the point of breaking down from a bearish Rising
Wedge. If this happens it is going to drop hard, in which case gold and
silver are going advance strongly. Gold's rally of the past couple of weeks
seems to be anticipating this and last week silver threw its hat into the
ring, breaking out from a Double Bottom base and confirming gold's recent
strength.
While we were wrong in the last update, the good news is that we haven't
actually missed all that much, for as we can see on gold's latest 10-year
chart, this party hasn't even started yet, and it won't, officially speaking,
until gold breaks above the clear line of heavy resistance at $1,400 that
marks the upper boundary of its giant potential multiple Head-and-Shoulders
bottom. While that level is still some way above the current price, it could
get there PDQ (pretty damn quick) if the dollar breaks down from its Rising
Wedge and drops hard soon, as is looking increasingly likely, and follow
through with a breakout into a vigorous bull market that will dwarf the one
of the 2000s into 2011.
Likewise, the rally so far in the precious metals sector has been
minuscule compared to what's coming if gold breaks out above $1,400, as we
can on the 10-year chart for the GDX, where we can see a sort of rough-hewn
Head-and-Shoulders bottom. If this is what it turns out to be then we still
have great prices for most stocks in the sector, as it is still very close to
what should turn out to be the Right Shoulder low of a giant
Head-and-Shoulders bottom.
The 6-month chart for GDX is interesting as it shows that a pitched battle
between bulls and bears is occurring in the vicinity of its still falling
200-day moving average and at the upper boundary of the channel shown. While
the larger dark candles and higher volume suggest that the bears will
temporarily win the day and force a reaction, this would accord with gold
backing off a bit as the stock market advances a little further before
reversing, and any such reaction should present a good buying opportunity.
Another significant upleg will soon result in a bullish cross of the moving
averages.
The impressive outperformance by precious metals stocks relative to
general stocks during the past few weeks is amply illustrated by the 6-month
ratio chart for the GDX relative to the S&P 500 index. This ratio eased
back in recent days due to the stock market's snapback rally.
We are going to wind up by looking at two charts that ought to turn even
the dourest of skeptics into precious metals sector bulls. First, the chart
for the gold to silver ratio, which shows that it is at levels that have only
been reached on three occasions in the past 20 years. The first occasion was
in 2002, when the great 2000s sector bull market was in its early stages. The
second was at the depths of the 2008 crash, which also dragged down the PM
sector due to the dollar spiking, which doesn't look it is going to happen
this time round, or if it does it is likely to be much more muted. The third
occasion was at the trough of the sector depression late in 2015 and early in
2016, when PM stocks were crazy cheap. The ratio exceeded all this levels in
the recent past, which is a reliable sign that a major new bull market is not
far away.
Next and last we will take a look at the 20-year chart for the ratio of
the HUI goldbugs index to the S&P 500 index. This ratio chart provides a
technical explanation for why the sector was so weak over the past 2 and a
half years—it wanted to make a nice neat Double Bottom with its lows of late
2015, and now that it has done so and is starting to rise up again, it would
appear that it is satisfied. This is a chart that bodes very well indeed for
the sector, especially as the rise off the second low of the Double Bottom
occurred as the broad stock market was falling heavily.
This update started out by me admitting I was wrong by being too bearish
on gold and silver in the last update, but in fairness to myself, I was right
about a lot of things. Like the stock market caving in, in particular the
FAANG stocks. Thus, we made a lot of money out of Apple
Puts, and by buying a range of broad market inverse ETFs, which we
sold for a nice profit before
and after
Christmas.
Let's end on a positive note by saying that if you thought 2018 was bad,
wait until you see what a terrible year 2019 will turn out to be. By
"positive note" we mean that although most investors will end up
losing a lot of money in 2019, it won't include us and doesn't have to
include you. On a general level, if you buy the precious metals sector here
or soon, and dump most everything else, you should come out on top by the end
of the next year, and handsomely so in many cases. Of course, on the site we
try to be rather more specific than that and will detail the various large
cap, mid cap and small cap mining stocks and also ETFs that can be used to
this end.
So Happy New Year to you all, and as for 2019—bring it on!!
[NLINSERT]
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Charts provided by the author.
CliveMaund.com Disclosure:
The above represents the opinion and analysis of Mr Maund, based on data
available to him, at the time of writing. Mr. Maund's opinions are his own,
and are not a recommendation or an offer to buy or sell securities. Mr. Maund
is an independent analyst who receives no compensation of any kind from any
groups, individuals or corporations mentioned in his reports. As trading and
investing in any financial markets may involve serious risk of loss, Mr.
Maund recommends that you consult with a qualified investment advisor, one
licensed by appropriate regulatory agencies in your legal jurisdiction and do
your own due diligence and research when making any kind of a transaction
with financial ramifications. Although a qualified and experienced stock
market analyst, Clive Maund is not a Registered Securities Advisor. Therefore
Mr. Maund's opinions on the market and stocks can only be construed as a
solicitation to buy and sell securities when they are subject to the prior
approval and endorsement of a Registered Securities Advisor operating in
accordance with the appropriate regulations in your area of jurisdiction.