As expected Gold has been breaking out of its triangle formation and quickly
pushed higher. So far $1,191 has been the high of this move - still way below
my target at $1,237. Unfortunately during the last seven trading days the bullish
momentum has been slowly fading away. You can still call the price action a
bullish consolidation but I do not want to see a daily close below $1,157 anymore.
Otherwise the rally is over!
Good news on the long term monthly gold chart, which is part of my Gold Model!
After four consecutive years with a sell signal the monthly chart switched
to a bull signal on October the 15th! This is a very positive development.
The super simple yet phenomenal Parabolic Sar Indicator would have kept you
out of any long positions in Gold since November 2011. Now the indicator has
switched and Gold has to fall all the way back below $1,072 to change this
indicator's reading.
Overall another signal that the bear-market might be over.
The latest commitment of trades (CoT-Report)
have deteriorated rather dramatically. Especially in the silver market the
commercial players (= professionals, bullion banks, smart money and mining
companies who need to hedge their production) have built up a massive short
position once again. Also for the gold market, the current positioning is a
sell signal (see my model). The air is already getting very thin for the precious
metal bulls here.
It will be interesting to see how fast the commercials will cover their shorts
into the next larger correction.
Clearly a strong warning signal and therefore only very limited upside potential
in Gold and especially in Silver!
Midas Touch Gold Model Summary
Compared to last week we have the following changes:
A new sell signal on the Gold USD-Daily Chart and an important
sell signal from the Gold CoT-Report. Gold Seasonality will
be a sell until mid of November.
New buy signals are coming from the Gold Volatility Index and
for the SPDR Gold Trust Holdings.
Gold Sentiment and US-Dollar CoT-Report have
moved to neutral readings.
Overall the model is in Soft Buy/Bull model but it
is very close to switch to neutral.
Gold Daily Chart
The fact that the bullish momentum is fading away plus the negative CoT-report
increases the probability that Gold's rally is already done. There is still
a chance to continue towards the triangle target at $1,237 but more likely
is a correction back to the 50MA around $1,138 which coincides with the apex
of the triangle. Generally as long as the 50MA is moving below the 200MA the
bears remain in control over all. November should bring clarity whether we
have just witnessed another bear market rally or whether Gold can find support
above the September lows and start another rally into spring 2016.
Recommendations:
Swing-traders should tighten their stops on any remaining long position.
A daily close below $1,157 should be the last confirmation. I would use any
strength towards $1,175-1,180 to sell Gold short with a 1st target at $1,138
and a stop at $1,192. Definitely continue to hold GDX and GDXJ and trail your
25% stoop-loss.
Regarding "buy the dip" I think the new up trend line currently around
$1,120 in combination with the lower Bollinger Band at $1,110 should deliver
enough support for a long entry around $1,115-$1,120.
Investors should be patient and wait for renewed weakness in November.
Long-term personal beliefs
It's still too early to call the end of the four year bear-market in Gold
and Silver. But recent price action has certainly improved the picture. Once
this bear is over a new bull-market should start and push Gold towards $1,500
within 2-3 years.
Gold has become somehow a fallen angel therefore it will need much more time
to regain the lost confidence.
Long-term price target DowJones/Gold-Ratio remains around 1:1.
Long-term price target Gold/Silver-Ratio remains around 10:1 (for every ounce
of gold there are 9 ounces of silver mined, historically the ratio was at 15:1
during the roman empire).
Long-term price target for Gold remains at US$5,000 to US$8,900 per ounce
within the next 5-10 years.
Fundamentally, as soon as the current bear market is over Gold should start
the final 3rd phase of this long-term secular bull market. 1st stage saw the
miners closing their hedge books, the 2nd stage continuously presented us news
about institutions and central banks buying or repatriating gold. The coming
3rd and finally parabolic stage will end in the distribution to small inexperienced
new traders & investors who will be subject to blind greed and frenzied
panic.
