Gold Weekly Report
28 Jun 2017 7:48 PM | Bill Downey (Administrator)
Why isn’t gold breaking out of its downtrend and moving higher?
With the escalation of violence and war in the Mid-East, one would think that gold and oil would be soaring to new highs for the year. Yet the opposite is happening.
The truth of the matter is when gold and oil are in bull markets, these type of events spur these commodities to move much higher. But when they are in bear markets, they are not affected.
 
The opposite case in point is the US stock market. Even though all signs point to a retraction in economic activity as well as a myriad of bearish statistics, the Dow continues to move higher.
It goes a long way to show just how important “sentiment” and money flow is to a market.
So where is gold sentiment right now?
At the moment the producers and users of gold haven’t been this short since July 2013. Though they are not always right, they are considered the smart money and are usually on the right side of the market. This is suggestive that gold should break under this week’s low of at some point in July. The next lower target for gold will be 1231. Only a move above 1262 would change that outlook.
As far as the trade side, the users and producers (smart money) remain on the short side of the trade. They are not always right, but enough that odds favor the downtrend that started when gold reached 1298 is still in effect.
As far as the numbers go, we can see that the large traders are long 2 to 1 and the commercials are holding the short side.
In addition to the smart money being net short, inflation statistics have taken a spike down recently and that doesn’t help the price of gold.
While the cost of living continues to move higher, it is important to note that it is a mainly a result of rising government taxes, services and excise. And even though we see rising costs from producers and companies, it is mostly cost passed on from the ever rising cost of government regulations on industry.
Believe it or not, we are actually in a deflationary spiral since 2008. Had the central banks not initiated the QE (quantitive easing) programs the global economies would have collapsed.
A great example of deflationary trends is this flyer from Radio Shack. It shows how much the cost of technology has collapsed.
But it’s not just technology.
The core of inflation lies in raw commodity prices. While everyone thinks that raw commodity prices have been rising for their entire lives, they are 100% wrong. The chart below shows that raw commodity prices have collapsed to levels not seen since 1976. The reason that the hyperinflation bugs have gotten it wrong is because they look at the COST OF LIVING and not INFLATION due to raw commodity price.
The point is this. For those of us who follow gold this chart is most important because it is a very rare event that gold rises without raw commodities doing the same. That rare event is when there is a LOSS OF CONFIDENCE in government or the financial system. And while many of us have already lost that confidence, it is only when the GENERAL PUBLIC make this realization that PANIC ensues. Odds favor that loss of confidence will occur between 2018-2022. Until then, commodities in general will have to stop falling if gold is to reverse the downtrend we’ve been in since 2011. As a side note, this chart only covers up to 2014. But the trend since then has not reversed. The CRB index is currently trading at 167 so this chart remains valid.
Intermediate Term – Bearish (Moving Averages = 120.33 – 120.56)
Last week we listed the best chance of producing a short term low at (115.50 & 117.50) for the coming week. The low turned out to be 118.15
Only a close above 121.50 would negate this short term outlook and suggest the short term lows are in place. Resistance is that descending green downtrend line and support is at the horizontal white lines between 115 and 117. Until then it’s a sideways market without real trend.
Medium Term TREND ~ NEUTRAL- (Moving averages (Red) 1233-1226 (Blue)
The big news in June is that gold exceeded the 2011 downtrend line. But as we stated last update, we needed a WEEKLY close above 1285 to confirm. That did not occur and gold since drifted back to the 1250 area.
THE OVERALL bottom line for now is that the downtrend that began in 2011 remains (at the moment) in force.
As long as gold doesn’t close below 1222 on a weekly and monthly basis, the chance for gold to move higher remains in place. With that said, the blue moving average (1226) remains below the red (1233) and that leaves the medium term trend neutral at the moment.
The best medium term read at the moment is gold is not quite ready for prime time yet. A MONTHLY CLOSE below 1206 could open the door to another year where gold’s first half year rally turns into a 2nd half selloff.
The best scenario to look for is if gold can pull back into the middle to end of July without closing below 1200. That would be suggestive that a 2nd half rally is being setup in gold.
Long Term TREND
New Long Term Observation
From time cycles it is important to note that the rally into 2011 lasted 144 months. July will be the 72nd month and half the time of the 2011 rally. If there is to be a 2nd half of the year that is meaningful, odds favor the low will occur in July. While certainly not definite, it happens enough times to to keep a watch out for.
Current Long Term Situation
NEUTRAL– (Moving Averages 1208-1214)
As long as monthly closes are above 1195-1205 the long term trend is neutral and a monthly close above 1322-1338 will favor that the trend moves to bullish on Long Term.
The 2015 low bear market low so far at 1045. The quarterly long term chart we published a year ago shows “one” of the reasons we felt Dec 2015-March 2016 would be the turning point for this bull market. The next clue we need for confirmation would be a quarterly close above 1438-1488.
The rally into July 2016 was the first of 5 waves. The correction into December was the 2nd wave lower. We estimated in November either 1172-1182 or 1072-1122 (weekly closing basis) as the two target price ranges that favored where the price low should take place. So far the low was 1122 during December and
The last Long term window forecast was for “the” low to take place between Dec 2015-March 2016 and December 2015 was the the odds favor the July correction complete.
The correction since July 2016
As described in previous reports since August, our analysis has favored the current correction that began in July to end in the November 2016 to January 2017 time frame. How that TURN looks on its pattern will give evidence if it’s just going to be a bounce like we saw in the first half of 2016 or more. In our (Jan 6th) update, the forecast favored the turn has been underway since Dec 21st. In order to CONFIRM THE TURN, GOLD NEEDS to now take out the 2011 downtrend line. A monthly close above 1322 would favor 1365-1438.
Long Term Continued
The BLUE average (1209) has to get above the RED average (1216) and price has to be above both averages on two monthly closes for the LONG TERM trend to turn Bullish.
Last week we reported that the MAY 2017 in gold has tested the moving averages and odds favored a bounce from that area. So far so good.
BOTTOM LINE
We favor the low was made in 2015 and a break above the 2011 downtrend line and (1308-1322) favors a test of 1365-1438 next.
But until we take out the 2011 downtrend line on a monthly closing basis, gold is still technically trapped inside a downtrend channel (and a wedge) on the chart. We’re at the BREAK POINT NOW as we decide who controls the market. This is a most important price point in gold (1308-1322)
Gold Stocks
Moving Averages (blue) 22.64 – 22.71 (Red) - intermediate term trend = BEARISH.
Short Term
On the last update, I discussed that odds favored the pullback would continue until we reached the support zone of 19.80-21.50. Since then, the low has been 21.60. The question becomes is that enough?
Seasonal charts show that gold stocks most often make their lows in July. While every year is not the same, at the moment, odds favor the low in gold stocks will occur in July.
Going to the GDX chart
Until we breach that dotted gold trend line, I remain cautious. Gold stocks are best described at the moment as sideways without a defined trend.
Resistance is now at 24 and at 25.50 and support remains 19.80-21.50.
We need to plow above that green resistance line (and the dotted gold) to change the situation to bullish on gold stocks.
Short term prices are in a sideways trend until one of the lines is taken out.
Interest Rates – Medium Term = NEUTRAL ON RATES
MOVING AVERAGE BLUE 23.46 – Red 22.57
Long Term
As long as price remains above the 1981 downtrend line, the long term low for interest rates has taken place in our lifetime.
Rates rise either due to GLOBAL GROWTH & CONFIDENCE, or GLOBAL FEAR due to POLITICAL & ECONOMIC & SOCIAL UPHEAVAL.
One or all have a chance to develop from now into 2018.
As for gold, it is our analysis that gold goes up during dramatic shifts in interest rates.
On a shorter term basis, even with the Fed raising rates two weeks ago, rates continue to pullback since the highs. Support is the two green dual trend lines. Odds favor one of these two lines will provide the pullback low in rates this summer.
although there is a feedback loop between gross market rates and Fed activity, most of the time the Fed is simply following the lead of the T-bill rate. That is fairly obvious when looking at a comparison chart. Every rate hike in the current cycle was preceded by a surge in the three-month T-bill discount rate from below to above the effective FF rate.
US Dollar – Long Term = arriving at key 93-96 area on the index
The dollar remains in our forecasted correction that we suggested would develop from the Fed Liquidity Panic Line. That correction remains in play.
Longer term trends are still up (at the moment) but we continue to say odds favor the control boyz are trying to reverse the trend of the USD back down. It has now arrived at the first critical long term area on the chart.
The USD is testing the first of two lines on the chart that provides the first important support points. Odds favor that one of these two lines is where the next dollar bounce will begin at (in this time frame). With price arriving at the long term moving averages (93-96) and where support line occurs, odds do favor the USD will make a low in this 93-96 area and attempt to stage a rebound.
This wave structure, if it develops, could spur an overall rebound into early-Sept. 2017.
Stocks
Medium Term – Bullish
Moving Averages 19850-19450
The long term trend in stocks remains relentless since the Global Central Bankers Fed 19 Trillion Dollars into the SYSTEM in 2009 and brought the cost of borrowing money to zero. However, as we`ve discussed in the previous updates, the 21K level in the Dow has been our target since the end of November when we took out that white line near 19000 on the Dow. This upper line represents extreme resistance. Price has yet to exceed that resistance line. And that’s what it comes down to. The line is now at 21880.
Bottom line
The stock market remains in a very steep uptrend channel since 2009. As long as it remains in the channel, the trend remains up. Odds favor price will correct from the top channel line to the support line at some point as it has done since 2009. Was the high in March 2017 close enough to the resistance line or does it kiss it one more time?
The uncertainty that is growing from a social, political and thus economic standpoint is staggering. The only thing that has most likely kept money flowing in is that a lot of the rest of the world is in worse shape. The trend is still up, but so is risk.
Gold Bottom line
short term
odds favor a low near July 8th (plus or minus 72 hours) and then a bounce into the week of the 23rd of July
Medium Term
Odds favor July/August for a low
Long Term
Odds favor the gold bull market will resume when we take out the 2011 downtrend line and a monthly close above 1322 & 1362. First we have to take out the downtrend line on a monthly closing basis.
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