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.
Gold prices can be amazingly volatile, especially when fear increases and a majority of people lose confidence in debt based fiat currencies, central banks, and politicians. If the analogue continues for several more years, we might see gold prices increase by a factor of five to ten into the $5,000 to $10,000 range in five to seven years (double the 3.5 year rally in the 1970s). We should not expect this analogue to predict gold prices, but we should NOT discount the possibility of a similar pattern unfolding.
In the next few weeks the banks may engineer another gold and silver smash, but silver prices will rise considerably in 2016 – 2020. The US and most global stock markets have entered a bear market. Some paper wealth will move from collapsing stock and bond markets into pure wealth – gold and silver, causing prices to rise.
Since President Obama’s inauguration in 2009, the federal debt held by the public has soared by 107%, according to recent data published by the Treasury Department. In raw dollars, Obama and his allies in Congress have burdened families with an additional $6.7 trillion in debt. That’s equivalent to more than $57,000 per household. Now the Obama administration is hoping to extract one last debt deal out of the retiring GOP Speaker.
Gold has broken above its 200-day average for the first time in 100 days once again. That’s the third time in the past five years. It has had multiple failed breakouts after being below its 200-day average for more than 100 days several times in the past 40 years. The third time it managed to break above its average coincided with sustained rallies during the next 1-3 years.
After its stellar performance this week, gold might do something it hasn’t done since 2012—that is, end the year in positive territory. Responding to a weaker U.S. dollar, continued contraction in global growth and wide speculation that interest rates will stay near-zero for the remainder of the year, the yellow metal broke above its 200-day moving average and is close to erasing its 2015 losses.
Ironically, we see Obama as a positive influence on gold and silver, for none of this will end well as the increasingly internationally shunned US tries to make the changes it wants to see, when such misdirected efforts backfire and only add fuel to the fire. Gold has had stronger rallies, such as starting from the end of June 2013, to keep a perspective on current market activity and not get overly swayed that a final bottom is in place. What bears closer scrutiny now will be the character of any reactions.
We are closely watching gold’s 90 week moving average (WMA), which was broken in December 2012, and, by doing so, confirmed the start of gold’s bear market. The 90 WMA comes in at $1226.96 /oz, and it will be a critical test for the precious metals complex. At least 3 weekly closes above its 90 WMA will prove to be a confirmation of gold moving out of its bear market.
The monthly bars in the chart show that the spot price of gold has retraced exactly 50% of its ten-year bull market between 2001 and 2011. The fifty percent retracment line often acts as a major support level. It’s also noteworthy that the RSI line has been trending sideways near oversold territory. All of which suggests that precious metals may be scraping bottom.
The forces described in this article are the true ones influencing gold and silver, not record coin sales, not record purchases month in and month out for the past few years by China, India, and Russia. Waiting patiently on the sidelines are gold and silver, wanting to have their day, and that day will happen, just not knowing when. Again, while the current rally seems fairly decent on the daily, the more controlling larger weekly time frame is not that impressive. A weekly chart is a stronger guide than a daily. Even the smaller range of last week, relative to the week before, suggests sellers are keeping a check on this market, at least for now.