Major U.S. and international banks cheat their customers and rig markets. Revelations have been piling up since the 2008 financial crisis. Hundreds of billions have been paid in fines, penalties, and settlements. The fraud, price manipulation, lying, and theft – once considered conspiracy theories – are now incontrovertible conspiracy facts. This reality is dawning now in the precious metals industry. GATA, the Gold Anti-Trust Action Committee, labored for years making the case for price manipulation in the markets. They, and others, made a powerful argument complete with price charts and trading patterns that simply could not be explained in free and fair markets. But their argument was universally disregarded by […]
With the American election looming, the financial markets are expected to enter a significant period of volatility and turbulence. The exact nature of this uncertainty will depend largely on the course that the respective election campaigns take, and whether or not the likely incumbent in the White House is perceived as a good or a bad choice. This has been the way for years; as various Presidential candidates and their policy projections have impacted on the financial market and its various asset classes. Seemingly safe and secure assets like gold tend to be particularly affected, as traders either flock to or abandon such products as the election continues to unfold. […]
All fiats fail, and the only difference this time around is the grossly exaggerated extent to which fiat has managed to survive. It also indicates that once the fiat “dollar” fails, and there are more and more cracks showing up in its ability to maintain its world reserve currency status, the move for physical gold and silver will also be favorably exaggerated to the upside.
Our conclusion is that we have reached huge support areas in 3 leading assets. Do not forget this rule of thumb: Investors make their biggest gains when buying at secular support levels. Given the stiff correction in gold and commodities, we do not anticipate a raging bull market as of the moment support is reached. Our view? As precious metals were the first asset to correct, we anticipate they will be the first to recover.
Will this potential double bottom hold? After the wide range bar decline, 6 bars ago, the last 5 bars have been overlapping, and the closes are almost clustering, both signs for a possible change in price direction. A rally can be expected, but surrounding circumstances dictate it may not last, as explained next.
With the dollar having recently risen to a new seven-month high, commodity prices are in retreat. The brown line in Chart 1 shows the CRB Index (of nineteen commodity markets) falling to the lowest level since August (through yesterday). That commodity selling started in mid-October just as the U.S. Dollar Index started rising. A rising dollar almost always results in lower commodity prices (and stocks tied to them). The commodity selloff has been quite broad and includes industrial and previous metals, energy prices, and agriculturals. Several of those markets are testing six-year lows.
For if the futures cannot bounce at least $30 after piercing 1073.70, I’d infer they are on their way down to 1044.50 at least; and thence to an obligatory test of $1000, where they haven’t been for six years. Below this watershed sit two more targets, either of which could mark the end of the bear market begun in August 2011: 971.35 (see inset) or, my worst case, 817.50.
The metals sold off last week. Gold is testing righ now its August lows. This is a critical price level, gold bulls would like to see this price level hold, otherwise a washout (capitulation-alike) decline could be in the cards. As for silver, it is holding up slightly better. According to the Andrews Pitchfork methodology from PitchforkPlayground.com, gold has been whacked hard as the US Dollar rallies. Support is occurring at the lower median line extension of the modified-Schiff pitchfork and the July/August lows. The outlook of the precious metals is clearly not supported by the secular breakout of the U.S. dollar. As the multi-decade chart shows, the dollar has broken out of its declining secular trendline, earlier this year, and is about to confirm its breakout by moving higher from these price levels.
As we have noted all year, the currency correction has been relatively weak, and weak corrections auger for higher prices. There is no way to know how much higher the deception of the fiat “dollar” will go. There will inevitably be signs of some form of ending action that declares the down trend to be finished. We have not yet seen any such sign. The sooner price can make a new recent lower low, the greater the probability that the down trend will end. In that regard, everyone who wants to be bullish should cheer on lower prices, for now.
Based on the secondary indicators, a case can be made for at least a short-term bounce in the coming week. While the MACD is predictably trending lower below both its signal line and the “0” level, showing strongly bearish momentum, the RSI indicator has finally reached oversold territory (below 30). The last time the RSI indicator was this low, gold formed a medium-term bottom just below the 1100 level and rallied for the next three months. Bulls will be hoping that history repeats itself next week.
This does not bode well for the short and medium term. We anticipate at least a test of the recent lows; even a lower low is in the cards. However, the good news is that it could become the final (washout) bottom, setting up for a huge buying opportunity!
There is not much room left to the downside, given the structure of bear markets. When carefully observing the second chart above, one can clearly see that the absolute bottom is being set around the 2nd year, following a very sharp reversal of a top. That type of extreme reversal occurs once. Such a bear market behavior is visible in today’s bear market as well. It means that the drop of 2013 was the key event in this bear market, and prices can go somehow lower but not to a significant extent.
Twelve times a year, we get to present the monthly charts in order to keep a higher time frame perspective. Higher time frames are much harder to turn and change trend, so it pays to always be aware of what a monthly chart is indicating. A fact that all can agree on is that price is at recent lows when compared to the 2011 highs. That indicates the trend is down. It would be impossible to argue otherwise, whether one is an experienced chart reader or has no experience.
While the next Commitment of Traders positioning report will be released tomorrow, the current data we have available shows that hedge funds and other speculators are extremely optimistic on precious metals, and in particular Silver. We are at record high managed money net longs (hedge funds), which must be very surprising to gold bugs. The fact that the price has not made a higher high nor cleared the 200 day moving average – and yet every Tom, Dick and Henry piled into this trade – tells us there is still room further downside. Obviously we are wrong with a tight stop above the 200 day moving average, however looking at the dumb money positioning and various bloggers opinions, we believe there is a lot of potential disappointment coming.