Gold and Silver - Analysis and Strategy No.41 by Florian Grummes

1. Gold in USD

After two very strong weeks of trading with significant price gains, gold closed at a new all-time high of US$1,593 for the weekend. Gold clearly broke out of the consolidation triangle and above the old high of US$1,575. This should soon lead to further price gains. The next resistance will be the upper trend line of the longer-term upward channel at about US$1,650 - US$1,665. MACD and RSI are still far away from extreme values. Gold should not react back below US$1,575 anymore. Only in an extreme case we could see a test of US$1,555.

2. Gold in EUR

After many months of sideways consolidation the gold price in € has also clearly and distinctly broken out to the upside. The price explosion was preceded by a final sale of €-gold down to the 200day-MA line and even below the lower Bollinger Band. An excellent buying opportunity ... Looking forward gold in € should dynamically move further upwards targeting 1,200€.

3. Silver in USD

Silver seems to have ended the two-month consolidation. The range from US$40.00 to 42.00 might not be taken out with the first attempt. Another area of strong resistance should be US$45.00-47.00 and finally of course the all-time high at US$50.00 which surely won't be taken out on the first attack.

4. Silver in EUR

Indeed, investors in the euro zone were able to pick up silver in late June right at the 200-day line around 23.00€. From here €-silver has been exploding higher for nearly 20% in the last 2 weeks. A breakout above 28.00€ should bring in an attack towards the april highs around 33.00 - 34.00€ within the next months.

5. Gold & Silver Mines

Generally, most gold and silver mining stocks at current metal prices are very cheap and do have an enormous upside potential for the next 6 - 10 months.

The HUI Gold Bugs Index is expected to advance rapidly in the coming weeks back to his all-time high at 610 points.

6. DowJones/Gold Ratio

The Dow Jones / Gold ratio is currently trading at 7.80 points and looks like breaking out to the downside. That would open up the way down to the February 2009 lows around 6.86 points.

Long term, I am assuming that gold is under the overall cycle since 2000 on its way to parity (= 1:1) to Dow Jones. The next parent cycle change is therefore probably still several years away in the future. We are in a superior long-term bull market in gold and in a parent long-term (real) bear market in the standard stock markets. However, it may take even years to meet Dow Jones & Gold actually at about 1:1.

Long term I expect the price of gold moving towards parity to the Dow Jones (=1:1).The next primary cyclical change is therefore years away. This means we are still in a long term bull market in gold (and also commodities) and in a secular bear market in stocks.

7. Commitment of Trades COT

Parallel to the strong price advance the commercials increased their short position in gold - futures significantly therefore no extreme position is currently observed.

Regarding silver it seems like the deliverable dealer silver inventory at the Comex dropped to another new low: http://jessescrossroadscafe.blogspot.com/2011...ntinues-to.html

8. Seasonality

Unlike previous years, the price of gold seems to have finished the summer break already. Seasonality wise precious metals tend to be weak during the summer months from June to August and traditionally the best period begins in september. Due to the turmoil in the financial markets and the fact that gold again is recognized as the currency of last resort seasonality should only play a minor role for now.

9. Sentiment

Although gold has been strong for a many many months, people became very pessimistic very quickly due to the last little correction. Any correction of the last two years has basically been only a small consolidation of around US$100 and already enough to frighten most investors. In any case, two weeks ago gold investor optimism fell to a 2-year low! Overall, we can also observe a constant increase in general anxiety in the financial markets, which is very positive for the safe haven of precious metals.

10. Conclusion & Summary

Gold is on the way to my new price target of US$3,500. Given the current constellation, I think it is even conceivable that gold could double by spring 2012 already.

In the next few weeks until mid of august I expect gold to move towards around US$1,650. Here a brief pullback could calm things down before gold will shoot higher to around US$2,000 by year's end.

In the short term gold might need some days to digest the big move during the last two weeks. I do not expect any more significant pullback below US$1,575. On the contrary, we are probably in the early stages of the largest upward move in gold in this bull market.

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	1. Gold in USD After two very strong weeks of trading with significant price gains, gold closed at a new all-time high of US$1,593 for the weekend. Gold clearly broke out of the consolidation triangle and above the old high of US$1,575. This should soon lead to further price gains. The next resistance will be the upper trend line of the longer-term upward channel at about US$1,650 - US$1,665. MACD and RSI are still far away from extreme values. Gold should not react back below US$1,575 anymore. Only in an extreme case we could see a test of US$1,555. 2. Gold in EUR After many months of sideways consolidation the gold price in € has also clearly and distinctly broken out to the upside. The price explosion was preceded by a final sale of €-gold down to the 200day-MA line and even below the lower Bollinger Band. An excellent buying opportunity ... Looking forward gold in € should dynamically move further upwards targeting 1,200€. 3. Silver in USD Silver seems to have ended the two-month consolidation. The range from US$40.00 to 42.00 might not be taken out with the first attempt. Another area of strong resistance should be US$45.00-47.00 and finally of course the all-time high at US$50.00 which surely won't be taken out on the first attack. 4. Silver in EUR Indeed, investors in the euro zone were able to pick up silver in late June right at the 200-day line around 23.00€. From here €-silver has been exploding higher for nearly 20% in the last 2 weeks. A breakout above 28.00€ should bring in an attack towards the april highs around 33.00 - 34.00€ within the next months. 5. Gold & Silver Mines Generally, most gold and silver mining stocks at current metal prices are very cheap and do have an enormous upside potential for the next 6 - 10 months. The HUI Gold Bugs Index is expected to advance rapidly in the coming weeks back to his all-time high at 610 points. 6. DowJones/Gold Ratio The Dow Jones / Gold ratio is currently trading at 7.80 points and looks like breaking out to the downside. That would open up the way down to the February 2009 lows around 6.86 points. Long term, I am assuming that gold is under the overall cycle since 2000 on its way to parity (= 1:1) to Dow Jones. The next parent cycle change is therefore probably still several years away in the future. We are in a superior long-term bull market in gold and in a parent long-term (real) bear market in the standard stock markets. However, it may take even years to meet Dow Jones & Gold actually at about 1:1. Long term I expect the price of gold moving towards parity to the Dow Jones (=1:1).The next primary cyclical change is therefore years away. This means we are still in a long term bull market in gold (and also commodities) and in a secular bear market in stocks. 7. Commitment of Trades COT Parallel to the strong price advance the commercials increased their short position in gold - futures significantly therefore no extreme position is currently observed. Regarding silver it seems like the deliverable dealer silver inventory at the Comex dropped to another new low: http://jessescrossroadscafe.blogspot.com/2011...ntinues-to.html 8. Seasonality Unlike previous years, the price of gold seems to have finished the summer break already. Seasonality wise precious metals tend to be weak during the summer months from June to August and traditionally the best period begins in september. Due to the turmoil in the financial markets and the fact that gold again is recognized as the currency of last resort seasonality should only play a minor role for now. 9. Sentiment Although gold has been strong for a many many months, people became very pessimistic very quickly due to the last little correction. Any correction of the last two years has basically been only a small consolidation of around US$100 and already enough to frighten most investors. In any case, two weeks ago gold investor optimism fell to a 2-year low! Overall, we can also observe a constant increase in general anxiety in the financial markets, which is very positive for the safe haven of precious metals. 10. Conclusion & Summary Gold is on the way to my new price target of US$3,500. Given the current constellation, I think it is even conceivable that gold could double by spring 2012 already. In the next few weeks until mid of august I expect gold to move towards around US$1,650. Here a brief pullback could calm things down before gold will shoot higher to around US$2,000 by year's end. In the short term gold might need some days to digest the big move during the last two weeks. I do not expect any more significant pullback below US$1,575. On the contrary, we are probably in the early stages of the largest upward move in gold in this bull market.