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Gold & Silver in a LT rally

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Gold continues to follow my road map with a wave B (green) now completed and a typical sharp move into a wave C.  When this is completed we can anticipate a strong rally away in a large scale wave 3 that may run and run.  The Wave B turned in the previous rally (wave 1 blue) channel breakout zone and right around the Fib 62%.  I expect the wave C to make it to at least the Fib 50% off the wave 1 top, which would also be coincidental with the closing of a currently un-closed gap with the MA200 lurking around the same area.  Failing that there is also support around the Fib 62% and the long term supporting trend-line.  Note also the Reverse Death Cross.  Not the first one in this extended consolidation zone but the first one is often reversed and then actioned again in an EWT 1-2, which is what we can see on the Weekly chart.

Silver is showing similar signals except it didn't even make the channel retest zone had fell faster and further, as is often the case.  With Silver I would not be surprised to see a retest of the LT supporting trend-line.  A bounce off this area with a coincident bounce off the Gold Fib 50% zone would be compelling for me.

 

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Still following my road map.

What could continue to drive precious metals lower?  Intrinsic market sentiment of course but also perhaps lower USD and high stocks.  Hmm!  I am seeing a rally in EURUSD (hence lower USD is on the cards and stocks?  Could be another ATH on the cards?  But if so then not for long as the key support areas for both Gold and Silver come up in fairly quick order.

One to watch and wait for a Long campaign that could run and run. 

 

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Both Gold and Silver are still following my road map however both have hit an interesting juncture, which could prove to be an early turning point.  I am still favouring the Fib 50% for Gold, a long term reliable Fib level for this market (however it does not occur at a strong price action support level this time so a further deeper retrace could be on the cards) and if that happens then Silver retesting the long term supporting trend line is also on the cards.

So much for that, what about the case for the current levels?

Gold:

  1. Complex form retrace (EWT) completed (that is an A-B-C with internal A-B-C forms on each leg)
  2. Pos Mom Divergence at the current price point on Daily and 4 Hourly charts
  3. RSI and Stochastic both over sold
  4. Credible 1-5 wave down to current price point
  5. Bounce off the Fib 38% and associated support zone
  6.  Potential Triangle breakout and retest then rally away on 4 Hourly chart

Similar on Silver, although perhaps less compelling.  I might expect a further drop on Silver with Gold holding or rallying slowly.  I am Long Gold at the Fib 38% with tight stops just below the turning point for a very low exposure trade.  For me this was worth the small loss if Gold carries on down but there may be another chance to get Long on a near term EWT 1-2.  And maybe Platinum is showing the way...

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At face value the Fib 38% looks to have turned Gold back into a rally phase but I am not yet convinced.  Longs are stop protected at break even but I do not expect this rally to stick.  To justify this I have to go back to the very long term picture and start with the Monthly to remind myself where we are.

On the Monthly we have seen a drop from the 2011 peak, which could either be seen as a 1-5 or an A-B-C.  That doesn't matter much at this stage as either scenario projects a rally beyond the 1400 level.  If it is a 1-5 some people will suggest we will only see an A-B-C counter trend rally, which will not surpass the 2011 highs.  If it is an A-B-C then fresh ATHs are indicated.  For now at least we can expect a significant rally that should carry through the 1400 ice/neckline after a clear H&S formation (it doesn't much matter whether the Right Shoulder (RS) is at Pink or Purple wave 2 for this purposes).  Note also the very strong PMD at the H&S turning point.

The Weekly chart is very interesting because there is a potential retrace triangle pattern in play.  Stochastic is oversold, which is supportive of a turn but not yet conclusive.  The COT data is not at a compelling level for me as it has not yet reached a net negative position, which has occurred at the last 2 recent significant rally points.  However in the past the turning points were coincident with lowest net long positions rather than actual negative positions (i.e. net short) and current COT is nearing negative at 36k, which would support a turn.  The ultimate reason why I think we will see another leg lower and a test of the Fib 50% level is because there is an un-closed gap at this point.

Zooming in to the Daily chart, we can see that un-closed gap more clearly, which is in the Fib 50% zone.  This is currently just below the Weekly Triangle lower line and a coincidence on these two occurs around the end of May.  There is PMD and a credible A-B-C completion at the Fib 38% but this would be stronger with another leg down.  There are other obvious support zones below the Fib 50% but I think the Fib 50% is the highest likelihood support zone.

 

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Looking at Silver I see a very similar set up, unsurprisingly.  In this case however, on the Monthly chart, we have a double bottom, rather than a H&S formation, at the Fib 76/78% support zone, a much further Bearish drop than Gold, again unsurprising.  A similar strong PMD exists at the 2015 turning point on the Monthly chart.  Again the move down from 2011 could be an A-B-C or a 1-5.  The rallies have not carried as far as Gold, falling short of the Fib 23% even and the long term ice line off the double bottom and key resistance remains, as yet, unbroken.

On the Weekly chart the sideways retrace move is synonymous with a complex retrace, many A-B-Cs and whip lash but the wave 2 (Purple) has strong PMD at Nov 2018 as well.  Price action since then is consistent with an EWT 1-2 retrace that is setting up for a strong wave 3 that would carry through many zones of resistance.  Stochastic is oversold, as with Gold ,but unlike Gold, Silver is in net negative (Bearish) COT territory, just.  In the recent past Non Comms have got the turns wrong in terms of net COT position.  However they never go very far into full Bearish territory with lows of net -30k in Aug/Sept 2018 being the most Bearish since 2007.  Often turns occur in low Teens positive so really a turn any time now is consistent with COT data since 2007.

On the Daily we can see an interesting Triangle formation, the top line of which price stopped at the close on Friday,  There is strong PMD at the Tues 23 April turn point, which was on the Fib 62% and a credible A-B-C retrace has formed.  However, as with Gold, I can't help feeling there is another leg down to this move.  I would like to see a more negative COT and a test of the possible H&S neckline, although I am not sure how strong the H&S really is.  A breakout of the Daily Triangle would be Bullish, given all other indicators support a turn into a Bullish phase.

So net on Silver I see 3 scenarios in order of likelihood as follows:

  1. All the current signals are pointing to a turn at the Fib 62% and a breakout of the Daily Triangle would add to this set up.  Note, in standard charting theory a Triangle formation is strong if broken about 2/3 of the way to the apex.  The close price gets to the apex after than the less reliable the formation is.
  2. A close second, or maybe a slight favourite, is a test of the H&S neckline coincident with another test of the lower Daily chart Triangle line in mid May.
  3. A much harder drop and retest of the long term supporting trend-line, around the Fib 76/78% level, this could be coincident with another leg down for Gold as Silver often amplifies Gold moves.
  4. The whole major long term rally idea is proved wrong as precious metals crash into a long term Bearish move - not very likely at all in my opinion.

 

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Gold looks to be poking through the Weekly Retrace Triangle resistance trend line, but of course the day is not yet over and the Week has just begun.  If this zone does result in a sustained break (close above) then the turn back into the Bullish trend could be happening.  Where Gold goes can Silver  be far behind?  To date precious metals seem to be more aligned to USD than anything else, although this is not conclusive in my view.  Still a period of USD weakness, as projected in FX analysis, could lift precious metals short to medium term.  What it will take to whip metals on to a major rally is something else but USD weakness could trigger the turn back after retrace.

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Breakout failed on Gold, either a false breakout or a rebound back off resistance Triangle line (take your pick).  Doesn't matter much, looks like Gold has resumed the road map path to lower support zones.  Picture is even clearer on Silver, which is currently testing a potential H&S neckline.  However if Gold does continue down to at lead the Fib 50% then Silver will probably retest it's long term supporting trendline.   I await developments, on the sideline, with interest.

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Gold and Silver just got simpler for me with Friday's price action.  Since my previous post both of these markets have dropped hard and Silver in particular has closed below my potential neckline, albeit marginally and at support.  Gold still has some way to go to catch up on Silver.  I see the likelihood of a rally from here as low given a dearth of appropriate signals.  I still believe it is more likely we will see a rally in precious metals when stocks eventually capitulate, although it could begin first in safety assets as Bulls begin to shift Bearish, the first movers so to speak.  I remain in favour of Gold turning around the Fib 50% and Silver retesting the long term supporting trend-line.  I will continue to track all my indicators to see if I get an across the board buy signal around these points.  Although not at all predictive it does seem like markets in general are trending to a resolution, one way or another, around about the end of May... 

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PS: forgot to add, net COT data hit triple digit positive (+128k) on Tuesday last, just as the market spiked and dropped, a contrarian dream...  Silver continues to deteriorate into negative numbers.  This supports my view that Gold will now hammer down faster than Silver in a catch up move as the non coms unwind their Longs pronto. 

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Sliver is pretty much down to long term trend line. Bearing in mind the Gold/Silver ratio, Silver has got to be considered as oversold. Doesn't mean it can't drop further though !!

Keep a close eye on those silver miners, may soon be time to go all in.

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Bit more to go yet @draa46 but it has certainly stalled on my possible neckline.  Given Gold probably has a way to go to bottom out then Silver should drop further, although I expect not by much and a fair bit of consolidation action between current levels and the LT trend line around 1420.  It is the breakout from such a consolidation, if it happens, that is of interest for Precious Metal Bulls, especially if Gold is also breaking out of a credible turn point.

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Silver is providing a better set of indicators than Gold for me at present, and is a more lucrative market to trade (more risky too therefore).  The precious metals are still conforming to my road map, and all 3 of my scenarios remain in play (2 Bullish, 1 Bearish).  For me the Bearish one is not a strong scenario, unless you believe in a continuation of the Bull market in stocks for the next few years, which I do not.  With Oil looking Bearish, and stocks too, I think it is only a matter of time before the precious metals Bull triggers big time.  Maybe the trigger will be a USD bear move short/medium term?  Precious metals do seem to be acting more in concert with currency just now than as a safe haven.  I think the latter will be what drives the Bull out of the larger time horizon consolidation but short term it could be USD weakness that kicks things off.  That also means I am not yet convinced we have seen stock indices capitulate but if they do then Precious metals should explode up.

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1 hour ago, Mercury said:

Silver is providing a better set of indicators than Gold for me at present, and is a more lucrative market to trade (more risky too therefore).  The precious metals are still conforming to my road map, and all 3 of my scenarios remain in play (2 Bullish, 1 Bearish).  For me the Bearish one is not a strong scenario, unless you believe in a continuation of the Bull market in stocks for the next few years, which I do not.  With Oil looking Bearish, and stocks too, I think it is only a matter of time before the precious metals Bull triggers big time.  Maybe the trigger will be a USD bear move short/medium term?  Precious metals do seem to be acting more in concert with currency just now than as a safe haven.  I think the latter will be what drives the Bull out of the larger time horizon consolidation but short term it could be USD weakness that kicks things off.  That also means I am not yet convinced we have seen stock indices capitulate but if they do then Precious metals should explode up.

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Sir gold chart

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Gold has arrived at an important juncture for me but before that looking at that I looked back at the long term charts to remind myself of the big picture.  Unsurprisingly there are 2 scenarios (1 up and 1 down), actually a third which is continued consolidation (sideways) because in the big picture Gold remains in a long term consolidation Triangle, which is narrowing.  This is significant as at some point Gold will breakout of this Triangle and that will signal the resolution to which of the 2 scenarios wins out.  For my money it is scenario 1, a massive Gold rally in concert with a massive stocks Bear as Gold once again reverts to its historic role as a store of value in uncertain times, and do we ever live in such times..!  Note under these conditions Gold can, and almost certainly will, go in the same direction as USD.

So I am Bullish gold and given all the bullish chatter of late you might imagine I am happy.  Alas I remain unconvinced of this rally and will not be so until there is a break of the previous high, around 1347, which we are very close to. Actually I really want to see a break of the upper resistance (LT Triangle line and potential H&S neckline breakout).

The short term offers 2 scenarios as well: the first a break of that prior High and turn at 1347, the second that we are currently seeing a wave B turn back down to a final wave C bearish run of the EWT1-2 retrace and a test of the Fib 50% line (also Weekly chart Fib 23%) before the true rally gets going.  I am minded to the latter unless or until I see a break of the 1347 high. 

Technicals:

  • A-B-C retrace could be completed where I have marked Green A at 1266.  A break of the 1347 high would confirm.
  • If not then the retrace is a complex version and the market will turn before or at 1347 and drop in a wave C.  The form of the rally is currently in an A-B-C, which is not motive, however a break of the 1347 zone will change this set up.
  • There is an un-closed gap around the Fib 50% level.
  • There is a pin bar and inside bar price action formation at the current market area, showing a potential turn once this is resolved.
  • RSI and Stochastic are over-bought.
  • There is NMD on the 4 hour and 1 hour chart at the pin bar high, although we could yet see another test of the 1347 level before this resolves.
  • Note also that we have seen a reverse Death Cross (some call this a Golden Cross) but I would ideally like to see a cancellation of this and then a final cross to cement a rally.  This will only occur if we get a big bearish move now followed by a wave 2 retrace turn into a very strong rally.

I am not looking to trade the bearish move, I prefer to wait for the Bull rally triggers and prefer to trade this in Silver rather than Gold, the former having remained more subdued.  Add to that the Platinum bearishness and I can't yet see a case for precious metals rally.  I think we will see continued stocks bullishness for a while, albeit likely to contain a lot of whipsaw action rather than a rocket, which does not support a massive precious metals rally, yet.

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So we did see a fresh higher high on the current rally but I remain unsure of this rally so long as it remains under the key resistance levels around that 1360 area.  It is possible the last retrace is simply a pennant (albeit a big one) in a wave 1 rally that could terminate around key resistance and plummet back to close that gap.  A clear breakout of the 1360 area is what I need to go all in Bull on Gold (or I should say resume).

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Gold hit a new high as my road map had projected and right on cue bounced back down off the potential neckline resistance.  The drop was quite strong, stronger in Silver and produced a Bearish pin bar on the Daily chart.  COT was high at net +205, supporting a contrarian turn however it has been a lot higher so this is not conclusive.  I could easily see another leg up before a drop, especially if USD drops off from here.  Ultimately I would need to see a breakout of the crucial resistance zone to get Long again but am not minded to trade this Short as there are too many scenarios in play.

If a Bear move is on the cards I would expect a break and retest of the 1 hour Triangle and rapid fall away.  Of course we would see this kind of price action for a short term bearish move as a presage to another higher test of Resistance above.

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SO Gold is on a rampaging rally eh?  Well maybe, maybe, but just like my views on Silver (see alternative thread) I am not yet convinced, and I am firmly a long term Gold/Silver Bull.  Gold seems to be responding to USD at present rather than acting as a safe haven and no surprise as the safe haven facility would only be triggered if we were in global financial meltdown, are we?

So Gold and Silver are merely responding to their own internal market dynamics for me and perhaps the rally has just reached its natural conclusion, for now.  Markets move in waves not straight lines as we all know.  Markets are chiefly driven by sentiment but when this sentiment gets too lob sided, without good reason (e.g. a financial meltdown) they tend to reverse.

On Gold right now I see the following scenarios:

  1. This is the conclusion of a wave 1 (blue) rally with a pin bar reversal off key resistance (very Bearish but not yet confirmed with a day close) that will bring up a strong Bearish move that could carry as low as a retest of the long term support trend line around 1230ish.
  2. We get a short term retest of the 1360 zone and a rally away.

The current price action is strongly Bearish, it could reverse later in the day but if it doesn't then I prefer scenario 1.  A break back below 1360 will confirm.  From a more fundamentals perspective we could be seeing a reversal of the Bearish bias on stocks as US large Caps approach fresh ATHs and the Bulls start to believe again in the never ending Fed story.  That one will end in tears, and worse, and at that point precious metals will be into that mega rally I am tracking.

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Aligned to my Silver post, where I am putting most of my precious metals energies for now, I see 2 scenarios for Gold.

  1. Short term drop to the potential H&S neckline (or weekly/monthly chart Triangle) and rally again that takes us through the overhead resistance.
  2. A Bearish move that takes the market back to close that gap with a retest of the potential pennant (pink triangle) that formed the halfway point in the current rally.

I guess there is an addition scenario that the market simply turns up from here and breaks through my last line of resistance into "clear air".

The overall move up could be described as either 1 motive wave 1 (blue) and the large A-B-C (red) as a half way Pennant OR 2 separate moves whereby the A-B-C (red) is actually the wave 1-2 (blue).  These 2 readings support scenarios 2 and 1 respectively.  The wave 1 (blue) turn is on a strong pin bar, backed up by a second in bar in Friday last.  Financials COT data spiked to net long highs of +279k on futures and options, very bullish and a contrarian indicator.  This spike occurred the very day we saw that pin bar turn.  Oscillators are heavily overbought.  I believe some form of bearish retrace is indicated but not sure or course how far it will carry.

 

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Just to update my Gold charts similarly to my post on Silver Bullet just now (see that one for a more comprehensive view on precious metals).

As with Silver, Gold has been stopped at a critical juncture (LT resistance circa 1440).  We have seen 2 failed tests of this level now (3 on Silver) both rejected with pin bar price action.  If we think of this as a double top (not quite exact but it rarely is, then we can call NMD across this double top (Bearish).  There was also NMD at the wave 1 (blue) top and turn on both 1H and 4H Bearish).  The rest of the technicals are harder to read than Silver as there are 2 possible ways to read it as follows:

  1. The retrace (pink Triangle - daily chart) is a 1-2 retrace and the recent strong rally is part 1 of a much bigger wave 3 rally.  This stacks on all levels, including fundamentals but Silver gives me pause for thought as does timing issue (see Silver Bullet post)
  2. The Pink Triangle is a pennant that formed at the halfway area and culminated in the recent top (wave 1 blue).  This is also highly credible.
  3. I guess there is a scenario for a swift breakout through over head resistance but right now the technicals do not support this.

As with Silver I see several retrace points and scenarios as follows:

  1. Retest of the 1360-80 prior resistance zone or potential neckline (Purple line) at Fib 50% off the May low (Triangle/Pennant low), if scenario 1 above is true.
  2. Retest of another possible neckline position (light blue line) or Fib 38% (off the Aug 2018 low, if scenario 2 above is true.
  3. Retrace to the Fib 62% off the Aug 2018 low (or a little lower to close that Gap), if Scenario 2 is true.

Short term the set up is very similar to Silver, except with a double top rather than a 3X resistance fail, so we are looking for either a breakout up through that critical 1440 zone or a new lower low through 1410 and on down.

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Similar story as seen on Silver with a firm break lower on Friday after US NFP seemingly gave pause to the Fed rate cut thesis, although that is by no means certain in today's crazy central bank and politics influenced market place (perhaps it was also thus).  Decent break lower after US NFP, although not as bearish as Silver.  This means that Gold may execute a catch up on Silver if the bearish sentiment takes hold and therefore there is potentially more profit opportunity here.  Or may lag and turn earlier...  I will be keeping a close eye on correlated price action.

My scenarios remain unchanged vs my recent posts; my positions are stop protected at break even so all that remains is to watch and manage in flight Shorts and see a reversal into Longs.  I will not be thinking of a pyramid strategy here as the risk of sudden reversal is too great, better to wait for the big Long trade for that.  This is the essence of medium/long term swing trading and use of EWT.  You only want to switch to trend following mode when you hit the long wave 3.  Until then you have to be mindful of whipsaw price action and 1-2 retraces, which is what I believe we will see on Gold (and Silver).  The question remains, how far with it retrace before the turn into the big one and how can I ensure I catch the initial Long opportunity to set up a firm foundation for a long term pyramiding strategy on the wave 3 (or possibly C)?

Time will tell, we probably have a few weeks to sweat this one out.  Price action, EWT, S/R zones and oscillators will all play a part for me in doing this.  Stochastic and RSI may be of particular note as one would expect these to touch down into oversold before any major rally.  All to play for and if we do see that big one on precious metals can a stocks top be far behind that..?  Or will it presage it?  Bit longer to go yet but not until 2020/21 as may pundits have said on TV I feel...

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Similar set up to my Silver Bullet post with Gold, being a bit more buoyant than Silver at present, having carried to the FIb 76/78% (only Fib 62% for Silver so far).  No doubt there could be another leg up to 88% and 78% respectively but that would not negate the A-B-C set up and if we do see a firm turn back down then Gold could well accelerate to catch up on Silver as the Long holders cover, which could see Gold break through than 1360 level and head on down.

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That potential wave B (brown) in an A-B-C form (light blue) held at the Fib 78% off the previous high/low and moved back off this sharply.  Now looks to be putting in a small 1-2 retrace (maybe to the Fib 50%) after a small 1-5 down.  If this concludes as such that will be a 1-5 down with an A-B-C up and a new lower low completes this move then this is a bearish set up and I would expect a retest of the 1380 support and a likely break through of that to test lower levels.  All this while Silver does similar and USD is starting a retrace higher...

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Still waiting for the ST retrace and drop, coming up on the Fib 62% but not there yet.  Lower high put in but not yet a lower low.  Non Commercials net COT data deteriorated by 20k off the highs of last week, if this continues then the bear will continue for a while yet.  A retest of the 1360 seems like a reasonable bet, after that, well we shall have to see how price action goes...

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Gold seems less bullish than Silver all of a sudden, as it looks to have put in a simple retrace at the Fib 62% and now a small 1-2 to back it up.  Looking for lower lows to confirm but I pulled the trigger at the Fib 62% for a Short.

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Adding to my Silver post, Gold has been more subdued that Silver, which gave me additional encouragement for considering Silver's resistance Trend line might hold.  On Gold itself the EWT set up remains bearish plus a small consolidation triangle has just been broken to the downside.  This offered an opportunity to go Short with a close stop just above the set up.  I would like to see a strong follow on, representative of a wave 3 or C and breaks of support zones in short order.

Fundamentals are the same as for Silver (see Silver Bullet thread) so perhaps we can anticipate a few weeks in any bearish move (or more whipsaw price action consolidation maybe).  With a close stop and low exposure I am content to wait for price action to play out.

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Gold broke lower and then reversed after a shallow 1-2 retrace then exploded with Silver back up through the small consolidation Triangle formation.  These types of Triangle are not that reliable but a break and now possible failed retest with key resistance overhead is setting up nicely for a major breakout.  Silver is also approaching a major breakout point, see my Silver Bullet Thread for more on that.  If USD does break down lower and stocks fall then Gold/Silver major breakout could be on.

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So Gold is breaking out of that long term resistance level (circa 1440) and the set up appears very Bullish, baring a significant break back below this level.  It is a weekly chart level so a close above for the week is important, not that it couldn't break below and try again for a breakout at a later time of course.

However for today at least I am looking for a short term retest of the breakout level, which we are currently getting.  A bounce rally off this level will be important to set up a long term bull run that could run and run and run.  On the 1H chart you can see the small retrace and I would like to see Stochastic touch down into over sold before I commit to any follow on rally.  Alternatively wait for the rally/break back down resolution and go Long on a higher high.  Ideally I would also like to see USD DX turn bearish again (or really EURUSD to turn and rally hard, which is a lead scenario for me - see my EURGBPUSD Triad post).

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So gold is going up up up?  PTJ says so (see previous post), many other big time traders have said so in various forums, end of the world doom mongers have been saying so for some time (gold at 5000, 6000, 10000!).  This is agreed by those that say bitcoin will take over from gold as a safe haven, yeah not going to comment on that one but I wont be holding my breath...

I agree with the PTJs of this world regarding gold and silver (although I am not sure Jim Rickards 10000 call is right) but markets do not move in waves and I don't yet see the stimulus that would propel precious metals (PMs) to these kind of levels.  I have heard 2 credible fundamentals theories supporting a gold long term bull market as follows:

  1. The Fed turns the taps back on and we get a repeat of the 2009-2011 explosion in PMs and stocks and basically everything, USD drops.  Of course other Central Banks (CBs) will not be standing by and letting the Fed have its cake on this as all out currency wars join trade wars on the agenda.
  2. Central banks not only revert to QE and ZIRP/NIRP but come up with new strategies to keep their economic plates spinning, which would initially cause a burst of risk on followed by exhaustion and collapse that would be a trigger precious metals rally.  Basically the end of the financial world scenario.

The overarching factor that many serious PM players seem to be pinning their reputations on is that economic catastrophe is coming no matter what the CBs do.  There is a growing sentiment, still not main steam by any stretch of the imagination, that recession is just around the corner (not in 2+ years time).  There is well commented on social and political unrest.  Hell even all the talk of crypto currency bringing down the US Dollar is a factor, at least in terms of the zeitgeist.  But are we there yet for Gold?

I have mentioned this before but it may be timely to remind myself of the 3 factors I have heard some serious money managers call out that must be in place to support and drive a gold bull market as follows:

  1. Unsettling interest rates back drop - check
  2. Gold appreciating in all currencies - apparently we have this, I don't have the data but others who do say we have this now
  3. Gold out performing stocks (S&P500) - not sure we have this yet in a meaningful way

You will notice that none of the 3 criteria include USD moves, actual political and social unrest, or actual stock market collapse.  Clearly the latter 2 would in principle be positive for safe haven assets such as gold.  The USD moves are neither here nor there as how gold performs vs all currencies is more important, regardless of whether you consider gold to be an asset or a currency.  Under the above criteria we do appear to require stocks to top out to have all the pieces click into place (or at least to plateau and go sideways for an extended period, how likely is that given the nosebleed altitude of stocks?).  But many are forecasting a stocks rally to infinity on the back of the Fed crashing rates to zero and others are calling for that scenario to drive gold up a la 2009-11.  It's all rather confused really.

Out of all of this I take 1 key thing - there doesn't appear to be any fundamentals case for Gold falling through the floor...  Yeah forget about bitcoin taking over from gold...  Maybe then it is just a case of waiting patiently for gold to go on a rampaging rally and not expecting it is imminent, why would it be?

So let's ignore all this, news, Trump actions, received wisdom and so on and look at the only thing we can see, technicals based on price action.

If I look again at the long term charts (monthly) I see a clear period of consolidation since about 2013 that has formed a head & shoulders pattern.  The neckline is effectively the horizontal ice line resistance zone, circa 1440 (or at the recent high of you prefer).  Price looks to have failed to break through this resistance at the time of writing.  It is important to note that the move down from the 2011 highs is in an A-B-C form, there is really no case for a 1-5.  The move terminated in the Fib 50% support zone off the 2011 highs, a classic retrace turning point, and on strong positive momentum divergence (PMD).  After an A-B-C retrace comes a 1-5 motive wave in the dominant trend direction (i.e. another bull phase, that would carry beyond the previous ATH).

Zooming in on the rally price action since the early 2016 turn at wave C we can see a clear 1-5 rally to wave 1 (purple) followed by an A-B-C to wave 2 (purple), which terminated at the Fib 76% and with a failed retest of the previous Bear channel line.  We then had another 1-2 series (pink labels), which terminated with a pin bar rally off the long term supporting trend line (2 different possibilities coming together actually).  This is where I first went Long.  Finally we get the rally up to where price is currently sitting having knocked on the door of the long term ice line resistance but failed to break through, so far...  Note the pennant retrace on this rally (weekly chart), which occurs exactly half way between the wave 2 (pink) turn and the potential wave 1 top out (blue).  This is a classic from the chartists playbook.  We can also see a good 1-5 structure to the whole rally (green labels) and a bearish pin bar at the wave 1 top, which is all highly suggestive that the rally has come to an end.

Looking more closely at this recent rally on the daily chart we can see a potential ending diagonal encompassing the wave 1 (blue) top and all the price action since the wave 3 (green).  The lower line price points are a little messy.  There is very strong NMD at the wave 1 top.

Finally, on the 1 hour chart, there appears to be a 1-5 bearish move down to wave 1 (brown) followed by a retrace to the Fib 50% in A-B-C form and another small 1-2 (blue) to follow up.

Prognosis:

While I am long term bullish, price action is offering strong bearish signals at this juncture.  The set up looks to be a wave 1 top and turn, which should be followed by an A-B-C retrace.  There are several candidates for the termination of such a retrace if it were to happen, I will await price action to decide on this.  A break through the lower ending channel line and then subsequent ST support will confirm my medium term bearish bias.  If you add to this high the net non commercial COT bullish readings as a contrarian indicator the whole thing screams Short to me, so I did.  This is a tactical move as the real opportunity is to reenter Long trades on the termination of the retrace bearish move to hold for a long term bull market.

 

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