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Gold & Silver in a LT rally

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Great work @Mercury,  the early 70's are significant to your thesis as the gold spike was due to easy CB money policies to generate employment leading to high inflation and subsequent high interest rates running to around 15%.

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Thanks @Caseynotes, I did not know that background, although I did know about the 15% rates in the UK that led up to the 1987 Black Monday crash...  15%!  Unbelieveable really in the context of ZIRP/NIRP and yet not that long ago.  Hard to believe a so-called developed economy could go from 15% to virtually 0% in just 30 years.  You gotta look at that and say "something is rotten in the state of Denmark..."

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@Mercury,    I knew the 1970's  inflation rate was in the double digits but couldn't remember what so didn't include it for my previous reply so I just looked it up now - still gave me a bit of a shock.

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Nice @Caseynotes, I remember Oil was a big issue alright and times were tough.  Now we are down in the 2%s the question is whether we will get back up to double digits (all that CB activity hardly moved a thing!) or slip onto depression?  My personal view, with no credentials to support my view I hasten to add, is the latter.  Prices are just too high.  Wages are just to low.  Debt is just to rampant in both consumers and corporate spheres.  Now the received wisdom, and many journos have written on this, is hold gold during periods of hyper inflation but the data shows Gold also does very well in periods of depression and market chaos.  So from a purely selfish perspective either is fine with me as I am betting Gold (and Silver) will go on a rampaging bull run.  That said the depression, albeit very painful, is probably what we need to get a proper and lasting rethink and reset of global economics.

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Final historic chart to complete the picture.  Similar to the Stocks analysis but in reverse this time, I wonder what happens to Gold when the Fed reduces its balance sheet and raises rates?  Looks to me like the divergence has to close and probably the 2 curves do a fly by cross over...?

fed-balance-sheet-vs-gold-price-2018-11-21-macrotrends.thumb.png.fd7f5cd3357b0a8933fc73c1c497f5e7.png

 

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Hi @Orion,  how do you want to buy gold on IG? 

Leveraged account speculating on the price of gold, spread bet or cfd? Leveraged shares in a company associated with gold, unleveraged shares? Buy the physical gold?

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@Caseynotes   Well from research, buy the physical gold. Is that possible via IG Index?  I expect the value of Gold to increase so if I cant buy the physical gold, whats the best next option? ETFS Physical Gold? 

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@Orion,  that's right IG don't do the physical and besides there are a lot of costs involved with storage etc. ETFs may well be a good way to go, perhaps our good friends  @TrendFollower  and/or  @Mercury can offer us some sage advice on the subject. 

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@Caseynotes Thanks for the swift reply. While we are on the subject, are we expecting a Global crash soon? (or has it started already). Any POV on crypto? 

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16 minutes ago, Orion said:

@Caseynotes Thanks for the swift reply. While we are on the subject, are we expecting a Global crash soon? (or has it started already). Any POV on crypto? 

Hi @Orion. Personally, I know anything is possible and it doesn't take much to start a panic but I'm not expecting a crash soon with the US economy so strong, GDP near 4%, PMIs in the 60s and record levels of employment. I have grave concerns for the EU though and any contagion from there could cause massive fallout world wide. 

There will need to be some form of digital currency to be used on blockchain in the future but am not convinced any of the present batch of coins will necessarily survive to see it. I have concerns with the whole mining/forking issues that plague bitcoin and that the many spawn of bitcoin also have adopted. 

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@Caseynotes, I agree with mining issues you point out. I dislike that whole scenario. I also think that though anything is possible a large crash on US equities is unlikely at this stage. We are just witnessing a large correction which to be fair was overdue. This has happened numerous times over the past 100 years and this will continue going forwards. 

I don't see Bitcoin not surviving as I think eventually all cryptos that do survive will be pegged to Bitcoin within the Cryptocurrency universe. 

I fear for Litecoin, Bitcoin Cash, Bitcoin Gold and the rest of the alt coins that offer no real value or benefit to the world right now.

 

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Getting back to Gold/Silver trading (and I have no views on trading Gold EFTs except to say that, as I understand it, they are never 100% physical gold backed.  Therefore if you really want to be invested in gold then buy from a reputable gold dealer who will also store you gold.  Sharps Pixley is the one I know best.  Check out their website.)

So far Silver (and Gold to a lesser extent) have begun the retrace I was expecting.  I think this is not yet completed and given the spiky nature of Silver we could easily see a retest of the recent triangle breakout zone (wave B) before a further drop to support and rally.  This would fit with a mirror image rally and drop on stocks (see my recent US Stocks post) although it is not clear whether there is any correlation yet...

Unlike @Caseynotes I view US economic growth as anemic when you consider the level of QE and the time-frame over which interest rates have been at ZIRP or NIRP.  A few reasons this is the case in my opinion are:

  • QE has mostly gone into capital asset appreciation rather than real economy and the concept of trickle down economics is ivory tower thinking - the gap between rich and poor has massively increased (entirely unhealthy for society in general)
  • Low interest rates have not encouraged real investment but a focus on M&A and share buybacks (at the top of the market) as CEOs seek to financial engineer their share prices and consequently there bonuses
  • Consumers and companies are over geared (the lessons of the credit crunch have not been learned nor the issues addressed).  We are seeing this in poor retail conditions as consumers cease to spend (watch for Black Friday results!) and poor wage growth because companies are on a cost cutting footing as top-line growth does not materialise
  • The much vaunted employment growth is largely driven by the gig economy, unstable and insecure jobs with 18th century labour practices (and the associated unrest that we have seen as workers kick against the traces is a clear manifestation of this) and this low quality low paid work is another reason for poor wage growth

I agree that the EU is a disaster waiting to happen, or rather to become manifest) but economics is now a global system, no single country will survive a major depressionary recession.  I feel that Gold and Silver will switch from reacting to USD value, as it seems to be right now, to a safe haven when stocks and bonds turn bearish.  Cryptos matter not in this context, except perhaps as a storm warning as over exuberance of pie in the sky ideas crashes down to earth.

Trading approach:

All of the above is Funadamentals backdrop for a big picture analytical assessment of a massive Gold/Silver rally to come and we have to trade the market price action.  If I see price move in the manner I have laid out I will be seeking to go Long at key trigger points on both Gold and Silver.

XAGUSD-1-hour_241118.thumb.png.6606604f6c341ab0b877188be1ac7815.png

 

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@Mercury & @Caseynotes,

You may wish to look at the link below.

https://www.bullionvault.com/gold-guide/gold-etf

I used Bullion Vault during the last major Gold bull run. I also used ETF Securities and their ETF and ETN products. Yes there are counter party risk issues with ETN's but I used them nevertheless and that is a different topic all together.

Have a look at ETF Securities whose products I do use. They offer a wide variety of Commodity ETF's and ETN's. They offer physically backed too. 

People thought Amazon was 'pie in the sky' and during the dot com bubble it lost $1.5bn. It is now only the second $1 trillion dollar market cap company in the world and just a mere 18 years later.

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I'm not sure with gold these days. It seems to be very range bound for months and months, as below. Seem to be a little towards a mid range so no real conviction bid or offer.

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That's true @cryptotrader, it has to break out of this consolidation zone before a new long term trend is established.  However if you believe as I do that the next long term trend will be a rally then you want to get some markers in early (this is my methodology) so going long at or near the bottom of the range is the thing to do, on price action signals.  Interestingly the HedgeEye people (video I posted yesterday) think the bottom of the range is around 1190 from memory.  I have been working off a long term supporting trend-line that is currently around that level.  This trend-line is effectively forming a Large scale Triangle form for the consolidation with a potential Head & Shoulders neckline being the top.  A breakout from this is a critical signal.

Trading strategy:

  • Go long on a suitable retrace turn (price action confirmed), maybe a retest of the 1 hour chart previous channel breakout rally (circa 1,200)
  • Go long on a retest and bounce off the LT supporting trend-line (circa 1,190)
  • Go Long on a break through near term resistance on the Daily Chart (circa 1,245)

Ideally we should also see coincidental Stocks turn and fall but this may come a bit later as we could also get my long awaited USD retrace bearish move that would give Gold/Silver an initial kick-start before the mayhem begins.

XAUUSD-Weekly_281118.thumb.png.5fb9b5ad2cb3eba6a0457bd35a946776.pngXAUUSD-Daily_281118.thumb.png.064a12028e640488420bdd2ad0154cd8.png

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While I remain steadfastly bullish on Gold while it remains above the LT supporting Trend-line I can't help feeling we will see a retest of the recent breakout zone around the 1,200 level.  I think we are seeing a volatile A-B-C retrace playing out.  On the 1 hour chart I have marked the A-B just in and now project a fast 1-5 wave C down to the Fib 76/78% level and retest of that breakout zone.  There is NMD to support this turn and USD seems to be going into a relief rally.  Gold and Silver appear to remain locked to the USD at present.

XAUUSD-1-hour_291118.thumb.png.0a50031c8a3c9f2c5d66235c6dd8d3ed.png

 

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So Gold (and Silver) did not drop as far as I had thought they might but the price action is positive for my overall assessment for a long term rally on Gold and Silver.  And now Stocks are potentially beginning that Bear (let's see).  However short term I think precious metals are responding more to USD weakness, or some other intrinsic factors rather than front running stocks (or maybe they are, who really knows..?).  And it doesn't really matter, what matters to me is that the price action is bullish and consistent with my scenario of a strong rally.  This was, for me, a set up worth trading Long on the breakout of the down channel back in early October.  I had actually taken a cheeky spec Long on the bullish pin bar at wave 2 (pink) but the breakout of the channel was the safer bet.  It did get a strong retest, which is all to the good as you don't want these LT rallies bursting out too quickly.

In terms of the Technical set up:

  • The EWT counts are a series of 1-2 retraces after the Pink 2 (itself a very large scale retrace)
  • There is a credible Head & Shoulders set up (see previous posts) to signpost a macro trend reversal
  • There is PMD at Pink 2 and Green 2.

Once we get a break of near term resistance there is really nothing to stop the rally until it hits the potential H&S neckline (around 1,360) although I might expect a halfway flag consolidation, which would confirm how far the first rally phase will go.  If this is to be a long term rally we will get a big retrace bearish move to prime that pump.  Watch USD and Silver also for signals of trend direction for Gold.  "As goes Silver so goes gold".

XAUUSD-Daily_041218.thumb.png.bd06f05455d42eea24a3cf9ca06930c7.pngXAGUSD-Daily_041218.thumb.png.951d58eb3900ca403dcfc175e34a147b.png

 

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Looking at the short term movements, pending longer term breakouts, I find Silver may offer more insights than Gold just now.  On the hourly chart there is an unclosed gap, which I think must be closed before the next rally phase in Silver (and Gold) gets going.  I think a retrace to around about the Fib 50% is likely, which is just below that gap.  After that we would need to see a bounce off this zone.  There is a similar set up on Gold, albeit the unclosed gap is arguable.  Or could precious metals just respond to USD?  Worth watching whether and when DX & EURUSD turn.

 

XAGUSD-1-hour_051218.thumb.png.5347256d3a71bab4c44627576b6903a7.pngXAGUSD-Daily_051218.thumb.png.c5f7b8cb2b79c9eb31eda48db90d0df4.png

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Silver did indeed close the gap and has bounced off the Fib 50% just below the gap, as projected, and is now rallying away.  A break of the overhead resistance is the next target (circa 1465) and then there isn't much standing between this and 1750.

Gold was a bit me bullish and has now put in a higher high, fast coming up on the magic 1245 level (similar to Silver's 1465).  Again nothing standing between this and the potential neckline (circa 1360).  While stocks remain weak and USD stays in a retrace bearish move the outlook is set fair for a strong rally in precious metals.

XAGUSD-1-hour_061218.thumb.png.f6ce18f186d07111d274e3764de975d5.pngXAUUSD-4-hours_061218.thumb.png.b83d280e55b4f95e5a7169551f4a09c1.png

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Correction, 1500 is the Silver equivalent to 1245 on Gold.  1465 is an near term resistance level only.

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Silver still has a bit to go to make the breakout but the EWT count is set fair for a strong rally (a wave 3 or 3).  A higher high over the recent high at circa 1465 should seal this move and a break of Daily chart resistance (circa 1500) confirms it.  If this all emerges then I expect a strong rally to the 1750 level before any major retrace.  The only thing that could appear is a consolidation phase, roughly half way up to the 1750 level.

In terms of Gold the picture is even more bullish (interesting as this would mean Silver is a bit behind, possible being restrained by the more industrial nature vs Gold and if economic slow down is coming then industrial commodities will take a hit, at least until they get ridiculously cheap).  Gold has made a higher high and is breaking through Daily chart resistance with a strong single daily bar move on Friday.  A continuation move (opposite to stocks drop) o Monday would be very bullish indeed.  The only fly in the ointment is a last minute USD rally on Friday night but either this will reverse (likely in my view) or precious metals detach from USD correlation as stocks drop through key resistance.  Note also that as with Silver, the EWT count shows 2 retrace moves within consolidation after a major turning point (pink 2 on Gold, Purple on Silver), which is why my assessment is for a wave 3 of 3 (a very strong move  - rally in this case).  If this holds then there will be no further retraces until perhaps a consolidation flag.  This will be important as it will give clues as to the length of this rally phase before the next counter trend retrace, which could be quite significant and would set up the market for a much, much bigger rally to come, but let's worry about that as and when...

XAGUSD-4-hours_081218.thumb.png.1393b4af6e556db1a6ee1b1a533d858c.pngXAUUSD-Daily_)81218.thumb.png.a8c57ce78bf61e217d7e7d1d913e0da1.png

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Silver is showing an interesting set up just now, having been contained within near term resistance but potentially poised to rally sharply through it after the short term retrace drop.  There are 3 overhead resistance zones for Silver to get through but the nature of this market is one of fast breaking moves so this is eminently possible and would signal a strong wave 3 move consistent with my projections and support the target area of 1750 as an initial "let's see what happens there" focus of interest.  Currently I am expecting a strong retrace from this area but a fast breakout would be a credible alternative scenario.  With Gold having already broken through near term resistance on a similar set up the odds are favouring a strong rally from here.  Add to this USD gearing up for a bearish phase (still unconfirmed but the case is improving) and Stocks on a down trend.  IF Stocks have made that final high and are in a long term decline in an initial wave 1 down (we can expect a counter trend relief rally at some point and a similar counter trend bearish move in precious metals) then now could be a great time to go Long precious metals (another strategy could be to wait for the retrace move and get Long at that point).

XAGUSD-Daily_101218.thumb.png.ee426c8f04755dbca6be1e00ca6f13c2.pngXAGUSD-1-hour_101218.thumb.png.0aa0830c98ab11bdbd3a6e2527abac5b.pngXAUUSD-1-hour_101218.thumb.png.ea5ff63e2e34bcdbc69257e0db10144f.png

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So Gold and Silver both made higher highs and then promptly reversed (a typical risk) in line with both a similar reversal on stocks and a rally in USD.  One thing to note, people often talk about correlations between markets as one driving another but for me this is more about data and signals rather than cause and effect.  There is something driving all these markets but I am less concern with what it is when conducting technical analysis than the fact of the correlation itself as portrayed in price action and what signals it might give me between markets.

I am now expecting a retrace bearish move on precious metals, which continues to align to a bullish retrace in stocks and a rally in USD.  Being mindful of the regular risk of such a reversal on the making of a fresh high (in particular the price action set up we can see on both precious metals and stocks - i.e. a 1-5 wave completion) I closed out all my short term Longs (Shorts on stocks) holding only my longer term trades located much further away from the price coalface.  I will seek to reenter after the current retrace moves complete and turn back.

Using Silver (a more active and therefore easier market to analyse sometimes than Gold), on the 1 hour chart we can see the current move up.  The recent top is a secondary wave 1 (brown) and next we may get a retrace to any of the suitable support points below after the initial A-B is concluded before a rally away.  But looking at the 4 hourly chart I could construe the whole of the move up from 30 Nov as one wave, in which case the red labels could be correct.  So if the brown labels are correct then there are several turn points as detailed on the 1 hour chart and if the red labels are correct then I would be looking in the first instance at the Fib 62% (red fib drawing) around about 1430 (although with Silver being so volatile it could go lower than that).  I see a similar picture on the Gold 4 hour chart.  One thing remains clear to me, until Silver breaks out above 1500 and Gold 1250-60 anything is possible so I will be holding my long term Longs stop protected at break even and waiting to see how all this plays out before considering another Long (I would not be going Short precious metals at this juncture).  I will also be watching stocks and USD for turning point clues.

XAGUSD-1-hour_121218.thumb.png.19ac40bec5cfdec85626a3c0db77c8da.pngXAGUSD-4-hours_121218.thumb.png.b3fac0d825bd8cc08954f7aef5ab3d37.pngXAUUSD-4-hours_121218.thumb.png.8b06940ad68f4849321739f1b368190e.png

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Precious metals did not retrace much, at least not yet but I have stayed out with my turning point Longs stop protected far below.  I am waiting for another retrace to begin a buy-the-dips campaign that I expect to correlate to either a period of Stocks bearishness (i.e. even more than we have currently had because I don't believe the market has yet fully woken up to the idea of a major Bear on stocks) AND/OR a period of USD Bearishness.

Using Silver to illustrate the technical picture right now I have a sharp turn On Friday off a potential H&S neckline with strong medium term resistance (circa 1500) above.  I have NMD present on both Daily and 4 hourly charts at this turn and USD rising.  If this pans out I would expect to see an A-B-C form for the retrace to a good turning point back into a Rally, maybe on USD turning Bearish or Stocks turning full Bearish or both.  I have used the Fib 62% as a working hypothesis but the Fib 76/78% looks looks stronger support but I will let price action be my guide.

On Gold I have a similar set up but without the nice potential H&S formation.

I will await events and seek a Long opportunity buying into the dip at an appropriate support zone with other indicators in support.  I will also watch out for a short term reversal and strong rally through over head resistance, especially aligned to correlated moves on Stocks and/or USD.  With Stop protected Longs already in lower down I can trade Long in a pyramid strategy with confidence.

Note: I am fully Bullish precious metals having identified a variety of turning point technicals, including COT data (see my recent COT posts on a separate thread).  For me it is only about when to add to my Longs not if this market goes Bullish as I believe it already has.  Once we see breakouts from resistance zones it will become all about managing the trend.

XAGUSD-Daily_221218.thumb.png.438993ed1403a4a6a8e933811fbf67bc.pngXAGUSD-4-hours_221218.thumb.png.1cdc9846dce355476ec8c13cb93d59f5.pngXAUUSD-Daily_221218.thumb.png.797d603c187b71d038cbbe582ba0c8b8.png

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@Mercury,

It seems the both of us have similarities in the types of trades we are looking at albeit we have got there in different ways. I had to wait for price confirmation signals based on trends. We are both looking at short US markets amongst other indices and both looking at long precious metals. The only difference is I am already long on both Gold and Silver and short on S&P 500. I think from memory you are also short the Dow. 

Though our philosophy is different, our paths lead to similar destinations. I too am looking to add to my long Gold and Silver positions and 'Pyramid' upwards on something similar to 'Buy the Dips'. I am looking to add to my positions on or around the new 'Higher Lows' formed. 

Though we have different views and ideas it is fascinating to see both of us advocate 'Short Indices' and 'Long Precious Metals' which adds value to the trade ideas albeit using different strategies.

Regardless of what you may think, I do read your posts, as I always keep an open mind and if you post something which I can use to enhance my knowledge or use to improve my trading then I certainly will consider and look into it. I will also challenge anything I do not agree with or understand as you are well aware of.

I will try again, have a wonderful Christmas and New Year. 

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From a fundamental perspective we could be gearing up for a good play on Gold. Political uncertainty, Feds interest rate decision, and a broadly slower global growth outlook has sent the wider market running for the gold-nugget-embedded hills of safety.

A weaker USD has also been beneficial.

Will continue to passively watch your discussions and analysis with interest and see if they're backing up the global macro picture!

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@cryptotrader,

I am not sure about backing up the global macro picture but I am trading primarily on price action and the behaviour relating to the trend in play.

Whether it backs the global macro picture or not is of no interest to me from a trading perspective. The only picture it needs to back and support is the trend identified.

The points you make are valid in relation to Gold.

Here is a question for you. You are making similar points to I have made in relation to Gold in a thread I started. What would it take for you to go long in Gold? I have openly shared my live Gold trade in another thread. Knowing what you know and analysing the current price action what would it take?

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I find gold not so interesting to trade. Many factors, but no real news apart from 'risk off' trade appetite. Bores me. Like you said I   think it needs to break 1290 and then would head to 1365.

You know I'm desperate as I'm talking about levels and tech analysis now ;P

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@cryptotrader,

I have openly said that I am not a fan of Gold either. However, on this occasion there has been a scenario where the 'Fundamentals' have been supported by the 'Technicals' and we are in a bullish trend in both Gold and Silver where Gold is making new 'Higher Highs'. I am trading it from a price action and trend perspective.

I have a live trade on another thread called 'Potential Long Gold Trade' so feel free to keep up to date with how I am doing.

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