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Update
Arguments for lower prices:
- After breaking through important support around
US$1,640.00-1,625.00, Gold continues to be weak
- Gold is still trading way below falling 50-MA
(US$1,642.85) and flat 200-MA (US$1,664.44)
- In mid February Gold
has delivered a "death cross" as the 50-MA fell below the
200-MA
- On the weekly chart: MACD sell signal still
active and Slow Stochastic starting to embed
- Gold is just barely holding above the recent
lows at US$1,555.90. Any
attempt to rally has
failed at US$
1,585.00
- Recovery during last 10 days was pretty muted.
Doesn't look like the final lows are really in.
- Overall Gold still trapped in sideways movement
(between US$1,525.00 and US$1,795.00) since September 2011
- COT Data for Silver still not really good, COT
Data for Palladium & Platinum continue to be very negative
- There is no real macro
economic driver visible yet that could have triggered this sell
off. The market might have anticipated something that we are not aware
of yet.
- Sentiment extremely bearish but what if Gold is
indeed in a bear market and sentiment in gold stocks continues to be bad ?
Arguments for higher prices:
- Gold extremely oversold and close to weekly
lower Bollinger Band (US$1,570.30).
- Massive support around US$1,525.00 -
US$1,540.00 has not been tested.
- Since 2001 Gold never touched or went below
monthly lower Bollinger Band (US$1,527.05)
- In the last two weeks Gold did not violate the
initial low at US$1,555.90. We have see some backing and filling but each time
Gold jumped higher impulsively and did not move below US$1,562.00
anytime. This is a very positive development and could mean a change in
the gold market's character.
- As well Silver negated the downtrend and is now
neutral. The Slow Stochastic "embedded status" has been lost,
therefore Silver now is strongly overbought
- Latest COT Data for Gold (commercial shorts at
-134K) are in the same range as last summer before Gold turned higher.
- Commercials are now net long the EURO
- Longer term, Gold in a similar correction
pattern like 2008/2009. Although long in time, this correction for gold
has been quite mild in terms of peak to trough magnitude.
- Sentiment continues to be extremely bearish and
at levels from which rallies can be expected to start immediately.
- Mining stocks are showing first signs of
bottom. As well there are some positive divergences in the indicators
and the BPGDM Index (Gold Miners Bullish Percent Index) has fallen to
its lowest level since the 2008 crash just above 3% which is a clear
indication of extreme oversold conditions.
- Gold mining production cost
are now on average at almost US$1,500.00 or even above. If Gold
is falling below this number many mining companies will have to close
down production and supply will be diminished rapidly.
- Seasonality until spring remains quite positive
for precious metals sector although it does not seem to play any role at
the moment in this sector.
- Central banks around the world continue to
increase their gold holdings (South Korea, Russia)
- Never fight the FED. Unlimited QE -> money
printing all over the world will push asset prices in all sectors
higher...
- Throughout history, periods of massive money
creation have always been inflationary and this time should be no
different.
- Most importantly, the fundamental fight between
the gold paper market (futures, derivatives...)
versus the physical Gold market continues. Traders do their thing in the
paper market but the focus for owners of physical Gold & Silver
should be on the longer term. The big picture and the fundamental
reasons to own Gold did not change at all. It remains the only insurance
against these astronomical debt levels around the world.
Conclusion
- Gold has seen the fifth month of falling prices
since October 2012. I have exactly called the high at US$1,795.00 but
have turned bullish again way too early. Instead of holding above
US$1,640.00 Gold broke through this important level and sold off down
into US$1,555.90. There has been quite some damage to the technical
picture. Now of course the big question is, how will
Gold continue from here..... I don't know the future and neither
do you. I believe it pays off to be prepared for every possible outcome.
Therefore
I came up with three
different scenarios:
- 1st scenario: Gold has already seen the lows and is now
preparing to start to move higher again. Sentiment is extremely bad, COT
data is positive and bears could not take Gold down below US$1,555.90
anymore. First target will be US$1,620.00. By moving above US$1,640.00 a
new uptrend will be in place and Gold should continue higher towards
US$1.795,00 again. This scenario remains valid
as long as Gold does not violate the recent lows between US$1,555.90 and
US$1,564.00.
- 2nd scenario: Gold is in the process of bottoming. There
might be still one last move lower to test monthly Bollinger Band and
strong support around US$1,525.00 and US$1,540.00. Even a short move
below US$1,500.00 followed by a fast and furious recovery is thinkable. This
would kill the last
bulls in the market
- 3rd scenario: Gold is indeed in a bear market and will break
through US$1,530.00 soon. As there might be lots of stops waiting to be
triggered and as it would be the fourth test of this zone it is very
likely that US$1,530.00 will not hold. Technically this would be a huge
sell signal and Gold could crash down to US$1,250.00 and US$1,050.00
very fast. This would be similar to the 1970s bull market. Actually you
just have to multiply the numbers by 10 and end up in today's game. In
the 70ies Gold went from US$35.00 to US$195.00. From there it lost
nearly 50% in two years and went down to US$105.00. Finally between 1976
and 1980 Gold went up to US$890.00. By early 1976 most of the gold bulls
had been killed and were missing out the final flight to the moon.
Imagine if today Gold continues to go down while the stock market is
breaking out to new highs! At US$1,250.00 and US$1,050.00 everybody will
have sold his gold. To whom? Yes, to the smart money and the banksters. By this, the pressure in the Gold market
will be so high that Gold could easily jumped to US$8.000,00 within a couple of years.
- So far I think scenario 1 has good chances to
become reality. But if Gold has trouble to get back above US$1,620.00
and turns down again scenario 2 and 3 will be in place. A daily close
below US$1,540.00 will shift my view towards scenario 3.
Long term:
- Nothing
has changed
- Precious Metals bull market. continues and is
moving step by step closer to the final parabolic phase (could start in
2013 & last for 2-3 years or maybe later)
- Price target DowJones/Gold
Ratio ca. 1:1
- Price target Gold/Silver Ratio ca. 10:1
- Fundamentally, Gold is still in 2nd phase of
this long term bull market. 1st stage saw the miners closing their hedge
books, 2nd stage is continuously presenting us news about institutions
and central banks buying or repatriating gold. 3rd and finally parabolic
stage will bring the distribution to small inexperienced new investors
who then will be acting in blind panic.
Personal Note
In case you did not know, I am writing an extensive gold & silver
analysis every two weeks in german... You can find it here....
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