Gold & Silver in a LT rally

[Mercury]

39 minutes ago, dmedin said:

Buy and hold gold at this stage, I would say.

That is perfectly reasonable but you will need stops a bit below the breakout point.  We could easily see a retest of this zone, maybe even a so-called hard retest (i.e. where price breaks back below the support level, stops out traders with stops too close, and then rallies hard).  What you need to try and achieve is a decent base (early trades in the money and price action forming a technical base for the move) upon which you can build and leverage in a pyramid campaign.  The first trade is always the hardest...  Just make sure you do not fall prey to FOMO, there is always another trade another day.

[dmedin]

Gold closed the gap/window, now back up

[dmedin]

Oops 😮

 

[Mercury]

So Gold made new higher highs but interestingly Silver did not.  It is my contention (and more pertinently that of recognised Gold experts) that Silver would exceed Gold in any major long term bull market move so the fact that Silver is hanging back gives pause for thought.  Many markets are correlated in one way or another and although they do not always do so consistently the Gold/Silver ratio relationship has generally been sound.  The very bearish candle on both weekly and daily charts on both is also a reason to consider than maybe this is not yet the time for a major Gold/Silver shift to a long term bull market.  I have been, and remain, of the opinion that to get a long term bull market stocks will need to crash and/or we will need to see runaway inflation (currently expressed as the "reflation trade" by market commentators).  We are not there yet!

For Gold/Silver to break away into a long term bull market new higher highs will be needed to reverse last weeks bearish candle.  The alternative scenario is one I have previously written on in this thread, which is a retest of Gold's H&S neckline (around the Fib 50% at 1350).  For Silver it is looking like this market may still be in a consolidation Triangle with a lower low retest of the LT supporting trend line a possibility as Silver runs lower than Gold.

[Mercury]

On Tuesday 7 January 2020 Gold commitment of traders made an all time high Long position (or at least as far back as 2007, which is kinda the same thing).  The net position wasn't an all time high but was close, the ATH was on 3 Sept 2019.  Remember what happened next?  Why is this relevant?  When it comes to markets like Gold and Silver the commercials hold all the cards.  They know the market dynamics better than anyone and certainly better than Wall St.  I trade with the Commercials on Gold/Silver and the COT data is screaming over bought as the non commercials appear to be all-in Long.  When a market is imbalanced like this, one of two things happen: we get a massive moves in the direction of travel as everyone tries to pile in but there are no sellers so the price gaps up and up until sellers return (unlikely on Gold at this point IMO) OR we get a sharp reversal as buying evaporates.

If we think about fundamentals we may consider the following:

1. Geopolitical tensions have eased a bit (although nothing is resolved)
2. There is a trade deal between the US and China (hurrah!) although it is a largely face saving "phase 1" deal of little real consequence.  Let's see what happens in phase 2..!
3. Brexit is now resolved, it is happening (but exactly how and when is not clear)
4. The stock market is on a rocket to the moon and the Fed is pumping in $50 bil in overnight Repo operations every night into the banks (what could possible go wrong???)
5. The USD is rallying again
6. The ISM non manufacturing data is still making positive noise (well it's all about services and the internet these days right?  Who needs nasty manufacturing and actual goods???)

If I consider the direction of travel (rate of change) of key economic indicators for the US (and for a moment suspend my belief that many of the measures are defunct, like GDP) I am not at all confident in the US economy and expect we will see a recession declared (post hoc) as having started in 2020 but we are not there yet.

If I consider the emerging zeitgeist on Gold (it will beat previous highs; it will get to 5,000; it will get to 10,000) the hype is matched only by that seen in Bitcoin and stocks.  When MSM start talking up a market you can be almost sure it will do exactly the opposite...

If I consider classic charting techniques, a head and shoulders neckline breakout, such as we have seen on Gold, is typically followed by retest of said neckline, this would suggest a retest of the 1,350 area.

So the scene is set for Gold and Silver to put in a significant reversal. in defiance of the chatter.

The techncials on Gold look as follows:

• After a massive rally to 2011 tops price has dropped in a complex A-B-C retrace to the Fib 50% (78% on Silver) then put in a Head & Shoulders trend reversal spanning just short of six years before breaking out to the upside and leaving behind a classic U shaped base from which a long term rally would be the expected result.
• The rally has stalled of late at the Fib 62% resistance area, which brings up an alternative scenario (and A-B-C - Red labels on monthly chart).  However the more conventional scenario is for a retest of the H&S neckline in a 1-2 EWT form bearish phase, with monthly oscillators all over bought.
• Zooming in to the weekly chart we can see that the rally up from pink 2, the right shoulder of the H&S and a failed retest on the long term supporting trend line, is in a 1-5 form and turned on NMD with a significant pin bar price action, the second such event of late.  An A-B-C bearish retrace is now indicated with a target of at least the 1,350 level where the neckline (weekly chart) an ice line converge.  An alternative neckline drawn on the monthly chart targets more like the 1,300 level and depending on when this happens this could eventually produce a retest of that long term supporting trend line but that is a ways off yet.
• Shorter term the daily chart shows a small 1-2 (brown) after a major bearish reversal off the over head resistance that may yet have another leg up in it before a bearish wave 3. to a larger wave A.
• Looking at Silver I think we have yet to see any major breakout rally as price is contained within a long term Triangle off a double bottom.  Unlike Gold, Silver did not put in a higher high so the price action looks to be entering a wave 3 down, which will likely travel much lower, relative to Gold, and probably put in a large flag consolidation at some point.  A retest of the bottom of the consolidation Triangle and lower long term supporting trend line would not surprise me.

So net my lead scenario is for a bearish phase now for Gold/Silver, which may require a small further rally to prime the pump but when it hits will be a hard run down in an A-B-C form to retest key support levels before the much talked about and desired massive rally, which would only occur when geopolitical and economic tensions reemerge, fear creeps into the markets generally, perhaps also with a USD bearish phase and stocks also and ideally rising inflation as well.  Right now the case for the long term bull market in Gold/Silver just doesn't seem strong enough, although it should be... 

 

[dmedin]

Silver took a huge dump today 😱

[Mercury]

Looks like Silver and Gold may be on the verge of a breakdown contrary to the broad MSM expectation.  I wonder whether we will see a USD rally and/or a further stocks melt up to match?  Don't need both (either really) but might expect at least one.  For my money it is USD that will rally, Stocks may or may not.

[Mercury]

I find myself wondering whether Gold will follow Silver down and if so will this be correlated with a Stocks rally (at least temporarily) and/or a USD rally.  Stocks do seem to be preparing for a US opening surge up, which at present I am tracking as a likely relief rally but naturally could be a motive wave to new ATHs.

I like Gold/Silver for a bearish phase prior to a major fundamentals driven surge to new highs.  The technicals align for a significant retrace down and the general market zeitgeist seems to be heavily weighted to the Bull side (contrarian signal).  Recent price action since the highs could be seen as an A-B (or 1-2) and price on both Silver and Gold turned back down around the Fib 62% level.

[Mercury]

Will Gold now follow Silver down?  Silver has made a lower low and looks intent on putting in a bearish wave C.  Gold is on a slightly different path but directionally similar.

[dmedin]

On 21/01/2020 at 16:32, dmedin said:

Silver took a huge dump today 😱

 

It's pretty much sh@t out its entire bowels in the last two days.

[dmedin]

19 hours ago, Mercury said:

I find myself wondering whether Gold will follow Silver down and if so will this be correlated with a Stocks rally (at least temporarily) and/or a USD rally

What does EWP tell us?  It's no good waiting for the event to happen before calling it.  That's called hindsight

 

[Mercury]

47 minutes ago, dmedin said:

What does EWP tell us? 

Have you got a view on that to share?  My view is the most likely scenario is down, which I have already posted on previously.  The price action is still consistent with that view.  The point of my post was to reflect that Silver has turned first and hard and Gold may now follow.  I traded Gold accordingly.  I didn't trade Silver because the risk and volatility is higher but the potential gain on Gold medium term is equivalent or better with respect to margin requirement and at a lower level of exposure.  That is multiplied now as Silver has already dropped.

[dmedin]

@Mercury Seems like everything is zig-zagging right now and attempting to buy or sell anything is futile.

[Mercury]

7 minutes ago, dmedin said:

everything is zig-zagging right now

Agree, probably best to wait for the Fed to do it's thing but be aware moves can be fast and contrarian around these big info/data releases and as the Fed is really the only bull driver right now for me care is needed...

That said Oil and Bitcoin have relatively little to do with the Fed, as do Soft commodities, except in so far as USD impacts short term.

I am Short Gold off the turn and Long Oil similarly.  The advantage of picking turns is getting in early with very low exposure if wrong.  The other way to go is to wait until a new trend is established and buy/sell the retrace but the draw-down exposure is invariable much much larger.  All has to be part of your methodology and baked into your rules for taking a trade and stop placement.  Even with this there will be times the market just isn't in your favour.  Minimise losses during these times and let your winners ride.  Challenge is different when you are in on a run; when to take profits, when to let run long term...  EWT helps a lot with this, if you get it right of course...

[dmedin]

Quote

Gold market watchers, particularly those in the Western world, tend to focus heavily on risk-on, risk-off sentiment swings and subsequent flows into, or out of, gold investment products, such as exchange-traded funds (ETFs).

While this is a valid method of assessing investor interest in gold, it also ignores the fact that about half of the physical gold market is made up of just two countries, China and India.

...

But the overall picture for China was one of weakness in gold demand last year, and it’s virtually certain that the outbreak of the virus won’t help retail demand, given the likely hit to the Chinese economy and to consumer confidence.

 

https://uk.reuters.com/article/uk-column-russell-china-health-gold/column-gold-gets-initial-lift-from-china-virus-but-may-take-longer-term-hit-idUKKBN1ZT1EA

 

Maybe ...

[Mercury]

36 minutes ago, dmedin said:

Maybe ..

Yeah maybe!

[dmedin]

🤨

[Mercury]

So that took longer than expected and required the Nasdaq to go on a rampage but looks like the bear is on now.

[dmedin]

2 minutes ago, Mercury said:

looks like

Until it looks like something else ...

Getting so tired of this game now.

[Mercury]

Taking a look at the first month of 2020, in the context of Friday's US large caps possible capitulation, and assuming for a moment (until proven otherwise) that stocks will indeed go on a bearish rampage for a while, Gold is in a bullish move but Silver is not yet fully following.  If we look at stocks we can see that most indices have been in a Jan bearish move except for the US large caps, which only caught on in the final days...  Although PMs and stocks are not necessarily obversely correlated (this is one of those received wisdom things) and Gold does not always go up in a recession (another erroneous received wisdom maxim) it does seem that they currently are experiencing opposite momentum from the sentiment drivers in play.  IF this continues and USD experiences a bearish phase and US bonds keep rising (yields falling) then Gold/Silver should go through a decent bullish phase.

Looking at the technicals (monthly chart only):

Gold

• That Head & Shoulders and associated PMD still holds sway providing a base for the strong rally after the neckline breakout.  A possible retest of the neckline looks to be off the table, a break of the near term resistance area will surely negate this scenario.
• In EWT term the rally looks to have put in a couple of long term 1-2 retraces prior to the neckline breakout and then broke out in what looks very like a wave 3.  But if this is to be a long term bull market that carries well beyond the previous ATHs then this wave 3 might just be at the beginning (i.e. a wave 1 of a much larger wave 3).
• From a chartist perspective the consolidation phase looks like a Flag on this rally phase, which started in Aug 2018 and so should carry to twice the length so far (target of circa 1840 to end the wave).  After that we could see a strong retrace that might even retest the current resistance level prior to a major wave 3 of 3.

Silver

• Silver is clearly lagging Gold at present but if and when it breaks out and gets after Gold it should do a lot better from a points gathering perspective.  This market also fell a lot further than Gold and so has a lot of upside even to get back to ATHs.
• Price has been contained in a very long term Triangle after a double bottom and very strong PMD but looks like it might be setting up to break out now.
• In EWT terms we have only had a single 1-2 retrace and the rally phase is much less powerful than Gold.  This suggest a shorter rally phase that may yet retrace for a retest of the Triangle breakout if it comes.
• In Chartist terms the same Flag consolidation as on Gold is present, suggesting the current rally may complete around 2,210, which is also coincident with a zone of resistance, possible an ice line off the double bottom reversal.
• If this market tracks Gold in terms of form rather than magnitude then a top and turn around 2,200 could result in a retest of that Triangle breakout before a major long term bull market.

Overall my feeling is that a bearish phase on stocks, driven by wider geopolitical concerns and economic data deterioration would produce this bullish run in PMs.  Stocks wont collapse from here before a significant relief rally (or EWT 1-2 retrace), which would produce that bearish retrace on PMs in my speculative route map and I cannot see PMs going on a long term bullish rampage without a major catalyst, which most likely correlates to a major bear market on Stocks.  For me Silver is the market of choice to capitalise on a major bull market BUT I think stocks Short may offer better opportunity in the short to medium term and perhaps waiting to buy the dips on Silver is the way to go.  Still putting down a market on a breakout of the long term Triangle is not the worst idea in the world... 

 

[Mercury]

Looks like the positive ISM Manufacturing reading and results from Google/Amazon have turned the tide on stocks and with USD set to rise (IMO) Gold/Silver bear phase is once again on.  We have had a turn back down this week so far.  A break below recent lows would be a strong signal that there is more to come and maybe even that neckline retest.  A Stocks reversal down again would probably put this scenario under pressure, unless USD rally can sustain it and I see a major bearish phase as requiring both USD and Stocks to rally and for the moment the direction is seemingly down.  I am Short off the turn and seeking to pyramid. Don't yet know if the next wave will be a fast wave C or still has some whipsaw action in it but if stocks do go on a melt up, as some are talking about, then it may follow that PMs will do the reverse.  I don't like stocks at these levels but shorting PMs is a decent alternative.

[Mercury]

Gold and Silver continue their march lower, despite coronavirus risk (if it is really such a big risk) and stocks march on in their seemingly never-ending complacency.  I am content to be Short PMs for short/medium term until the worm turns.

IF we see PMs make new lows I feel they may hammer down to retest key long term levels and if those levels hold then the big rally may once again be on.  Net COT was as bullish as it has ever been on Gold at the top and turn, Silver is lagging.  Such a strong bear move will clear out a lot of Long positions as stops are hit.  This will both fuel the bear move, which may carry further than many might be expecting, and prime the pump for the next bull move, which I think will happen on real geopolitical and/or geo-economic risk rising (and or maybe the coronavirus morphs into an actual thing, but let's hope not on that one...).  I would also be anticipating a stocks melt up and reversal to exactly inversely mirror PMs.

Short term a break of the 1535 level for Gold (1733 for Silver) is the next key juncture.

[dmedin]

Caw canny now, my bonnie loon. 🐮

 

[Mercury]

Storm Ciara is keeping me indoors by the fire with plenty of time to think about the capital markets for a change.  I find myself in a quandary on Gold/Silver with credible scenarios in both directions.  I am still minded to expect to see a strong bearish retrace before things really get going and if USD and Stock indices keep going up it is hard to see the big Gold bull taking off.  The only thing that would either lit a fire under Gold (temporarily or longer term) might be Coronovirus concerns.  I saw a report today which suggested that the death toll so far has exceed SARS.  But again I would expect to see stocks fall, which they may temporarily but I don't see a credible top on US large caps yet, although you never know, that is the essence of a Black Swan.

For now I will wait and see how things develop and for better trading signals.  I would really want to see Silver breakout of its Triangle to get behind a big rally and I am minded to trade Silver rather than Gold on a big bull move so still plenty of potential to catch the bull yet, not need to rush in.

 

[Mercury]

Looks like Gold (and Silver) may be turning.  USD remains strong and share indices continue their melt up.  I suspect PMs will drop fast as some point and only get back to that much tipped Bull run when there are fewer people calling it and Stocks (and likely also bonds) capitulate.

For now looks like a consolidation channel has just been broken in the 1H after NMD at the turn and an A-B-C wave form.  Looking for price to start below the channel and then break lower to confirm.

[Mercury]

Looking good for Gold bears...

[Mercury]

Is that Gold/Silver reversing?  For a bearish scenario the break lower ought to have spurred on some significant selling but the bugs seem inclined to buy in at every opportunity, smacks of the stocks euphoria.  Still don't see a wider global cause for concern longer term but the coronavirus could, I guess, be spurring on a bit of buying.  I wonder whether there is a potential signal here portending a bearish phase for USD and/or stocks?  There is no technical issue with PMs staging a rally and then falling back to earth that mau coincide with a stocks correction before a further push up into the melt up proper.  The current price action on stocks seems a bit static, albeit up, but it is not yet going on a rampage that one would expect from a breakout into a major new bull trend maybe this is about to happen but if so then PMs would be expected to drop too.

Once I see such a reversal I cover and wait, which is where I am now on PMs.  Needs to break to new lower lows for me to get interested again.  I am, as ever, alive to the possibilities of a stocks bear phase...

[dmedin]

Silver would have been a far more profitable short.

[dmedin]

Gold is on the rise.

[dmedin]

Gold's next leg up 😻  Come ye wee beaut!